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ECONOMY

EXPLAINED: Sweden’s rising prices and what’s being done to stop them

Sweden is experiencing the highest inflation in 30 years. What's behind the price rises and what can the government do about it?

EXPLAINED: Sweden's rising prices and what's being done to stop them
The prices on display at a petrol station in Sweden. Photo: TT

What are the factors behind the increase in prices in Sweden? 

The biggest single factor has been the rise in oil and gas prices, which has pushed up transport and manufacturing costs across the world, pushing up prices more or less across the board. 

The Covid-19 pandemic has also disrupted the production and transportation of goods, leading to shortages as the lifting of restrictions releases pent-up demand. 

Finally, most countries have been running expansive fiscal and monetary policies. The US, for instance, has so far sent out $1,400 cheques to 127 million households. 

SEB’s senior economist, Robert Bergqvist, told The Local that Sweden if anything faced slightly lower inflationary pressure than other countries. 

“One reason why Sweden has lower inflation is that we still have slower wage growth, because we have wage agreements that last for three to four years,” he said. 

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What has the government done to help people in Sweden? 

Quite a lot. 

In January it offered an electricity rebate of up to 2,000 kronor per month to all those hit by high electricity prices.

On March 14th, it launched a package of subsidies for car-owners. 

This included a pay-out of between 1,000 to 1,500 kronor to every car-owner in the country, which has cost the government 13.9bn kronor. 

It also included a temporary reduction in tax on petrol and diesel to the lowest level allowed by the European Union. The government said that this would reduce the price by 1.3 kronor per litre. This will reduce the government’s tax intake by 3.8 billion kronor. 

Finally, it has also a temporary increase in housing benefit for families with children, which could provide up to 1,325 kronor in extra benefits a month between July and December this year. 

Are the other political parties satisfied? 

Of course they’re not. This is an election year.

The Moderate Party are pushing for a tax cut that will reduce the price at the pump by five kronor a litre for diesel, and “several kronor” for petrol.

The Sweden Democrats party has proposed a package it claims will reduce the price of diesel by 9.45 kronor and petrol by 6.50 kronor, at a cost of 34bn kronor. 

The only party that is against reducing fuel tax is the Green Party, which instead wants to pass 20bn kronor to households living in the countryside to help them deal with the additional costs. Subsidising fuel, the party argued, meant “filling Putin’s warchest”. 

What about economists? 

Robert Bergqvist said that Sweden’s relatively strong government finances meant that it could easily afford to be this generous to lessen the pain for citizens. 

“It’s nothing that will jeopardise the very strong government finances that we have,” he said. “Sweden can afford a more expansionary fiscal policy.” 

The only risk, he argued was that having what he called a “slightly more expansionary fiscal policy” could end up pushing prices up even higher. “It could be a bit inflationary,” he said. 

What can Sweden’s central bank do? 

Controlling inflation is one of the key purposes of a central bank, and Sweden’s Riksbank is instructed to aim for inflation of two percent. 

The Riksbank’s current position is that there will be no increase in interest rates until the second half of 2024. But the prices rises of the last six months will almost certainly force it to act sooner. 

In an interview with Sweden’s state broadcaster SR last week, the bank’s governor, Stefan Ingves, said that the bank would need to change its position. Most economists in Sweden now expect a rate rise in the second half of this year, or at the start of next year. 

Ingves’s deputy, Anna Breman, said in a speech on Wednesday that it, now “now looks like it would be reasonable to bring forward a rise in interest rates”. 

Will Sweden manage to get prices under control? 

Bergqvist said he believed that the Riksbank had a relatively short window in which to act if it was to avoid the risk that high inflation expectations become firmly established among companies and wage earners. 

“We have new wage negotiations which will start at the end of this year, and you will have new wage deals in the first quarter of next year,” he said. 

If the unions expect higher inflation in the coming years, they are likely to push for more generous wage hikes, which could in turn lead to rising costs for companies, and so increase inflation still further. 

“When I talk to companies and households, everyone says that we have an inflation problem, that prices are going up, and I think we haven’t seen the worst yet,” he said. “I think inflation will continue to rise. Companies say costs are rising and that it’s also quite easy to raise prices right now.” 

If the Riksbank does not take action soon, he argued, then high inflation expectations will become more too established to reduce much higher interest rates, which could cause a recession.  

“And that will make it much more difficult for the Riksbank to bring inflation down to two percent,” he said. 

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ECONOMY

Swedish parliament approves government’s budget

The government's budget and controversial pensions agreement has been passed by parliament after an independent MP, who held the deciding vote, chose to support it at the last minute.

Swedish parliament approves government's budget

The budget passed by 174 to 173 votes.

As a result, guaranteed pensions for pensioners on low or no incomes will increase by up to 800 kronor a month after tax from August.

Formally, a majority of MP’s voted no to the right-wing opposition’s budget, proposed by the Moderates, the Christian Democrats, the Liberals and the Sweden Democrats, meaning that the budget proposed by the government with the support of the Green Party, the Left Party and the Centre Party was approved.

If the vote had been even on both sides, it could have been decided by drawing lots, giving each budget a 50 percent chance of being passed.

Finance Minister Mikael Damberg thanked the parties supporting the government’s budget in a press conference following the vote.

“I want to thank the parties who contributed to this: the Centre Party, the Left Party and the Green Party,” he said. “In total, a million pensioners will be affected by this proposal as soon as this autumn.”

“It’s a necessary reform which is about equality. After a life spent working in Sweden, everyone has the right to economic security in their old age.”

In an interview with public service broadcaster SVT Nyheter after the vote, leader of the conservative Moderate party, Ulf Kristersson criticised the new budget, stating that pensioners would have been better off under the opposition’s proposal.

“It harms confidence in Swedish economic policy and it’s bad for the pensioners who would have had a better pension under our proposal,” he told SVT.

“It shouldn’t ever go to drawing lots,” he told SVT, “this has been a rather telling end to a term of office which has been completely unsustainable.”

“We need governments who can govern, with a governing foundation and well-thought-out economic policy.”

On the other side of the political divide, Left Party leader Nooshi Dadgostar was happy to see the government’s budget passed, despite the fact that the so-called Nooshi-supplement to pensions which she had lobbied for was not included in the final pension proposal.

“It’s a long time since I was this happy,” she told SVT. “We wanted a raise in the guarantee pension from the beginning – we haven’t raised the guarantee pension by this much in over 25 years.”

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