Swedes suffer drop in disposable income

The majority of Swedes will experience a drop in their disposable incomes this year in comparison to 2009, with higher mortgage costs to blame, according to a new report published by Swedish bank Swedbank.

Swedes suffer drop in disposable income

Households with high mortgages, and pensioners, are the groups feeling the biggest pinch over the past year, according to the bank’s estimates.

Mortgages are not the only item pushing up household costs, the bank observed, with bills for electricity, telecom, food, clothing and newspapers all having risen over the past year.

There is however some respite in the form of decreased union and employment insurance scheme membership costs.

Families with two children living in rented accommodation are those who have experienced the best development in their disposable incomes over the past few years, with a increase recorded every year between 1998 and 2010.

“The biggest climb was in 2002 thanks to substantial pay increases and the introduction of the cap on preschool costs,” Maria Ahrengart at Swedbank said in a statement.

The government’s introduction and expansion of an in-work tax credit has also improved the situation of many people in recent years.

Despite the downturn this year, child families in rented accommodation are those with the most money left over once necessary expenses have been paid.

The financial situation of families who own their homes varies more significantly from year to year, as most of whom service large mortgages. This is also the group which will suffer the greatest drop in disposable income in 2001, due to interest rate rises.

Sweden’s Riksbank is expected to raise the base repo rate by one percentage point in 2010 and if mortgage rates follow accordingly this would equate to a rise in monthly mortgage costs by around 580 kronor ($91) after tax per million kronor in mortgage loans.

Single parents and pensioners are two groups which have fallen behind in the development of disposable income over the past year.

“The support which society gives to single parents is not linked to price and income growth. The child allowance was raised on July 1st last year, but both maintenance and housing benefit erode in value each year,” Ahrengart explained.

Retired couples who suffered a drop in their pensions last year, stand in line for further falls this year.

“Over the past two years they have lost nearly 800 kronor a month. That is a lot of money,” Ahrengart said.

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Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”