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Housing costs cause Swedish inflation spike

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Housing costs cause Swedish inflation spike
English house in Helsingborg's Tågaborg district in Skåne, January 2009
12:12 CET+01:00
A substantial increase in housing costs and higher prices for electricity and food raised Sweden's inflation rate to the unexpectedly high level of 2.3 percent in December, exceeding the central bank's, the Riksbank's, target.

Inflation stood at 1.8 percent in November. Consumer prices rose by 0.7 percent from November to December, according to Statistics Sweden.

However, as a Nordea analyst pointed out, the prices for electricity, food and accommodation typically increase during the fall and winter.

"It also contributes to rising inflation expectations," said Torbjörn Isaksson, chief analyst at Nordea, on Thursday.

A new round of wage negotiations is also expected in the autumn of 2011.

"There are things for the Riksbank to think about," said Isaksson.

In the immediate course of events, he believes that inflation will retreat somewhat when electricity prices fall ahead of the spring. However, oil and food prices will continue to rise, in line with global values.

"I think we will see even higher food prices in the future," said Isaksson.

Analysts had, according to a Reuters poll, on average expected a rise in consumer prices of 0.45 percent in December and an inflation rate of 2.15 percent.

The inflation rate is the average change in consumer prices in the last 12 months.

The underlying December inflation rates according to the CPIF and CPIX measures were 2.3 percent and 2 percent. The monthly change in both cases was 0.6 percent, the agency reported.

Higher housing costs contributed to the higher inflation rate by 1.4 percentage points, higher electricity prices by 0.6 percentage points and higher interest expenses by 0.5 percentage points. Rising food prices contributed an additional 0.4 percentage points.

However, the inflation figure was somewhat lower than Swedish bank Handelsbanken's economists had expected. Electricity prices, 15 percent higher than a year ago, were behind much of the rise in inflation.

"Electricity prices rose even more than we anticipated," said Anna Råman, an economist at Handelsbanken, on Thursday.

The agency's figures supported Handelsbanken's forecast of the Riksbank's future actions.

"We believe that the Riksbank will raise interest rates at each of its meetings until late 2011," said Råman.

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