The Riksbank
Time to put pressure on inflation's winners
Andreas Cervenka
Reporter and economic commentator
This is a commenting text. Analysis and positions are the writer's.
Updated 18.15 | Published 18.09
The Riksbank's interest rate cut is a long-awaited lifeline for many Swedes.
But just bowing gratefully with the cap in hand feels a little strange.
Three lost years for the Swedish economy have strangely been the best ever for some companies.
Quick version
"Here we must be humble, the Riksbank has historically been very wrong several times."
When Riksbank Governor Erik Thedéen met the press after today's interest rate announcement and was asked how certain one should be that the promised interest rate cuts this fall will happen, it became clear once again that Sweden's most powerful authority has a new sheriff.
Erik Thedéen continues in his appearance to distance himself from his more assertive and masterful representative Stefan Ingves.
Given how crooked the Riksbank has often ended up, it appears to be a wise strategy.
Erik Thedéen came almost to the press conference dressed for a funeral in a dark suit, and also his colleague Åsa Olli Segendorf, head of the department for monetary policy, had a very sober appearance.
Against the graphite gray background of the Riksbank premises, they gave an extremely serious impression.
But it is also possible to refrain from laughing when you consider the situation in the Swedish economy.
"GDP has been basically unchanged since the end of 2021. It is mainly interest-sensitive parts of the economy, such as household consumption and housing investment, that have developed weakly," the Riksbank writes in today's report.
An economy that has not managed to create any growth for three whole years is a real blow.
The Riksbank lowers the interest rate to 3.50 percent and flags for two or three reductions this year, which would mean that the interest rate at the turn of the year will be 2.75 or 3 percent.
Some economists want to see the bank progress even faster precisely because the economy is so weak.
Many Swedes suffer.
Inflation is now on the way down, in July the increase in consumer prices, CPI, was 2.6 percent compared to the same month last year. Increased interest costs for household mortgages contributed as much as 1.1 percent.
No wonder the Riksbank got everyone to focus on the measure where the interest rate effect has been conjured away, the so-called CPIF, which was 1.7 percent in July.
In three years, the CPI has risen by a total of 22 percent. Everyone who received a salary increase of 22 percent raises their hand. The financial wounds that the inflationary crisis has torn open will take time to heal.
However,not everyone is a loser. For some, these years have been fantastic.
It is enough to botanize a little among the interim reports that poured in during the summer. The four major banks made a combined operating profit of 46.5 billion in the second quarter. That is 35 percent more than in the same quarter in 2021, before inflation took off. At the time, Sweden was in a boom.
Axfood and Ica's profit has risen by a total of 49 percent during the same period.
Essity, which makes diapers and menstrual pads, has lifted profits by 69 percent. Volvo Cars' profit rose by 25 percent. H&M's profit is up 90 percent, Sweden's largest industrial company AB Volvo has increased profit by 76 percent between 2021 and 2024
Of course, there are also many companies that have fared badly, but considering how grim times have been, it is remarkable how unscathed the business world has sailed through the storm.
But as inflation has fallen, the number of price changes is also back to the old pattern.
Don't expect a flood of price cuts in the fall.
The conclusion after three years is that food prices in July were 27 percent above the level prevailing in the summer of 2021, according to Statistics Norway.
Last summer, the Swedish Competition Authority came out with a report which stated that the high food prices are partly due to poor competition. In an almost provocative deal, Axfood bought competitor Citygross this summer, a deal that reduces competition even more.
An interest rate cut from the Riksbank of 0.25 percentage points is received in Sweden as a gift from above.
The submissiveness is hard to understand.
And unlike food, it is not even possible to compare prices in a meaningful way due to the almost laughable lack of transparency with "list rates" and "average rates".
That there is still administrative hassle and penalties for those who want to redeem their loans and change banks is incomprehensible.
Just in these two areas, food and banking, there is a lot to be done that could in the long run save consumers significantly larger amounts than, for example, tax cuts from the state or a one-off interest rate cut from the Riksbank.
Something for Finance Minister Elisabeth Svantesson to think about when she talks about the government's view on the economy this week.
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