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What does Sweden’s increasing inflation rate mean for you?

Swedish inflation rates are now at their highest level since September 2008. But how may this affect foreigners living in Sweden?

swedish coins and notes
Higher inflation rates could mean less money in your wallet – especially if you're earning in a foreign currency. Photo: Fredrik Sandberg/TT

UPDATE: In November Sweden’s inflation rate continued to rise to 3.6 percent. Click HERE to read more.

Sweden’s inflation rates rose to 3.1 percent in October compared with 2.8 percent in September, according to the CPIF (Consumer Price Index with fixed interest) measurement.

The CPIF measurement, which is that used by the Swedish Central Bank, subtracts the effects from changes to mortgage rates from the CPI (Consumer Price Index) measurement.

Excluding the effect of rising energy prices on inflation, CPIF inflation in October stood at 1.8 percent, compared with 1.5 percent in September.

But how will this affect you?

What does higher inflation mean?

Inflation means that the price of goods is increasing. It can become an issue if wages don’t rise at the same speed, as salaries have to stretch further. This leads to the real value of wages decreasing, so consumers end up with less money in their wallets.

What does this mean for foreigners in Sweden?

Andreas Wallström, Swedbank’s head of forecasting and deputy head of macro research, believes that those living in Sweden who are employed by a Swedish company will “most likely” be affected by rising inflation rates “to the same extent as Swedes”.

“I can’t see that foreigners living in Sweden would have particularly different consumption habits to average Swedes, they most likely have a home where they’re paying for rising energy prices, probably also – to the same extent as Swedes – transport prices, rising fuel costs,” he told The Local. Their Swedish salaries would also most likely rise in line with Swedish inflation rates.

However, those living in Sweden who are receiving their income from another country may notice a difference.

“If you have high inflation in one country, but income in another country, where inflation isn’t so high, you might lose purchasing power, that is to say that your true income would actually decrease,” said Wallström.

Those working for employers in other European countries will probably be unaffected, but those earning in US dollars, for example, could notice a difference.

“If you look at Europe at the moment, the way in which the inflation rate is developing looks similar in a lot of countries – more or less in Europe, on average, inflation this autumn is at around 3 percent, which is the same as in Sweden. The USA is sticking out, though, where it’s noticeably higher, more than twice as high than here in Sweden,” Wallström continued.

Could this result in a stronger Swedish krona? Photo: Sofia Sabel/imagebank.sweden.se

What could the knock-on effects of this be?

Rising inflation levels, if they continue, could also result in the Swedish krona’s value increasing.

“If inflation stays high, then the Swedish Central Bank might tighten up their monetary policy a little bit faster than the ECB [European Central Bank] will in Europe, for example. Then that could be a reason for the krona increasing in value slightly in the future, which could benefit people living abroad with their income in Swedish kronor,” explained Wallström. Conversely, this could be bad news for those living in Sweden and earning in other currencies, as their salary, when converted into Swedish kronor, would be worth less.

This could be good news for companies working with imports, on the other hand, although Wallström warns not to get too excited about this: “If the krona gets stronger, then it would absolutely be good news for import companies. That said, though, there aren’t many right now who think the krona is going to get much stronger – most analysts, including us, think that the krona will get a little bit stronger, but not a lot. We don’t really think that the Swedish Central Bank will raise interest rates much more than the ECB will, rather they’ll stay low.”

Should I be worried about rising inflation rates?

Probably not, thinks Wallström, unless inflation in the USA starts to affect Sweden.

“I don’t think so, at least not in Europe generally – I think maybe what’s happening with inflation in the USA sticks out as more worrying, and I think it could be more long-term. And the effect which that could have on Sweden is that if American inflation stays high, then maybe the American Central Bank could raise interest rates earlier, and by more than expected – which could lead to higher interest rates globally, which could lead to higher interest rates in Sweden, which could weaken house prices in the future.”

High energy prices are one reason for the recent rise in inflation rates. Photo: Janerik Henriksson/TT

What is causing it?

Wallström believes there’s a good explanation for current high inflation rates, especially when comparing the rates year-on-year – energy prices. But they won’t cause inflation to keep rising as long as they stay high but don’t increase further.

“Around half of inflation is energy prices, and what we know is, even if electricity and fuel prices in spring are still high, inflation is the difference in energy prices from one year to the next, so high electricity prices won’t contribute that much to inflation in the future, even if they’re still high,” he explained.

This also means that if fuel and energy prices decrease next year, we could see inflation rates fall again.

“We can’t rule out the fact that energy prices could even decrease somewhat, economic growth could slow down somewhat, and then we could end up seeing inflation fall because of energy prices. Energy prices are often very volatile,” Wallström said.

He added that it was a good sign that it was mainly energy prices which were increasing year-on-year, “so as long as we don’t get a very wide spread of inflation – that a lot of goods and services see rising prices, which I don’t see many signs of in Sweden or Europe in general”.

In the past month, other goods and services that have seen a price increase include food and drinks, and cultural services and goods such as package holidays, tickets to sports and cultural events, and ski equipment, according to a report from Statistics Sweden, which suggests that these price increases may be due to the easing of pandemic restrictions.

“We noted a broad price increase on recreational and cultural services such as sports competitions, cinemas, theatres and admission fees to dance clubs. This development may be related to eased restrictions,” said Sofie Öhman, statistician at Statistics Sweden, in a statement.

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For members

EUROPEAN UNION

Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information:

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp/consumer-oriented-faqs-pan_en 

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp_en 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK. 

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