Slam against the Swedes: SEK 2,600 billion

 

 

Andreas Cervenka 

 

The blow to the Swedes: SEK 2,600 billion 

 

Published: Less than 2 hours ago 

 

Updated: Less than 50 min ago

 

NEWS 

 

The latest inflation figures confirm that Swedes are getting poorer at a rapid rate. 

 

The price increases have reduced household purchasing power by SEK 300 billion in 2022, while the total wealth has plummeted by SEK 2,300 billion. 

 

And now even more interest rate increases await from the Riksbank. 

 

According to Statistics Norway's consumer price index CPI, inflation was a whopping 10.8 percent during September. This is the highest figure since the early 1990s. This means that almost 3 million Swedes have never experienced anything similar in their lifetime. 

 

There are many inflation measures circulating right now and it can be good to know the differences. The CPI, which is a weighting of many different goods and expenses, is perhaps the most relevant to ordinary people. 

 

The Riksbank prefers to look at CPIF, where the effects of increased interest rates have been subtracted. It was 9.7 percent in September, measured at an annual rate. 

 

 Finally, there is also KPIF-XE, which is inflation minus interest and price increases for energy. It was 7.4 percent in September, which shows that the high inflation is not just about rising electricity and gasoline prices. 

 

What do these numbers really mean?

Short summary: we are getting poorer. 

 

Inflation is the same as our money becoming less valuable. 

 

And it's going pretty fast now. If we look at the total price level, measured as CPI, compared to the average in 2021, it has risen by 11.7 percent up to and including September 2022. In other words: to get as much as we got for 100 kroner last year, we have to now cash out with SEK 112. 

 

The impact on an entire nation is about a lot of money. Swedes' total income and contributions after tax were approximately SEK 2,300 billion in 2020. During 2021 and so far this year, salaries have increased by around 2.5 percent at an annual rate, according to the Mediation Institute. So significantly slower than inflation. 

 

If we make a simple estimate, this means that the purchasing power of households has fallen by almost SEK 300 billion so far in 2022. This can be compared to the fact that households' total consumption in 2021 was NOK 2,360 billion according to Statistics Norway. In addition, it has hardly escaped anyone's notice that the value of our assets, shares and housing, is also falling. 

 

According to the bank SEB's savings barometer, the net wealth of Swedish households, i.e. assets minus liabilities, fell by SEK 2,300 billion in the first half of 2022. 

 

The decline comes after a long rise and the figure for total wealth, SEK 21,700 billion, is still impressive. But then you have to remember that the distribution is quite uneven in Sweden, where most of the assets are owned by the richest ten percent. 

 

The Swedes' biggest asset is, unsurprisingly, housing, the value of which was SEK 12,700 billion at the end of the first half of the year. The mortgages amounted to a total of NOK 4,000 billion, or just over 31 percent. It doesn't look too dangerous but then again averages lie a lot. Many have significantly higher mortgages than that.

 

What happens now? The Riksbank has signaled that more interest rate increases are expected to try to bring down inflation. 

 

The critics say that higher interest rates do not bite the inflation we see now, but for the Riksbank it is pretty much about saving face. Since the authority took in so much when inflation was below the target and introduced negative interest rates, it is difficult to shrug when prices increase five times faster than intended. 

 

A small source of joy, however, is that inflation in September was roughly as high as the Riksbank had expected. In the past, the bank has repeatedly underestimated the rate of price increases. 

 

Many in the market expect the Riksbank to increase by 0.75 percentage points at its next meeting on November 23 (the decision will be published on November 24). 

 

In that case, the Riksbank's interest rate would land at 2.5 percent. Still not a monster interest rate in a historical perspective. But much higher than what the Swedes were used to. 

 

Much also depends on what happens in the outside world. On Thursday afternoon, inflation figures will come from the US, which many, including the Riksbank, will study closely.