“Inflation” at 16 percent - why Swedes are depressed about the economy ekonomin
The Swedish economy refuses to take off and households are as pessimistic as during the financial crisis.
One possible reason: Swedes feel that the Swedish inflation bonfire is still burning at full speed, even though the official statistics say something completely different.
Last week, it was announced that the Swedish economy, measured as GDP, shrank by 0.2 percent compared to the last quarter of 2024.
The figure was significantly weaker than most economists at banks and authorities had expected, and the hope that 2025 would be the year of revenge for the Swedish economy seems increasingly distant.
An important explanation for the meager growth is that Swedes spend their money very cautiously. Figures from the statistical agency SCB show that household consumption in the first quarter was at the same level as the same period in 2020 – that is, five years ago.
The National Institute of Economic Research's measurements show that while there is a fairly normal atmosphere in the manufacturing industry, there are real crisis vibes among households.
The so-called confidence indicator, which weighs together the answers to a series of questions in a survey, is indeed higher compared to the absolute lows in the fall of 2022, but has fallen back sharply in recent months. Households now view the economy as gloomily as during the financial crisis of 2008 and 2009.
Compared to March, more people are answering that both their own and Sweden's economy are worse than a year ago. Expectations are also lower about what it will look like in twelve months.
One answer in the survey stands out a little. It's about inflation.
According to the statistical authority SCB, price increases have almost completely disappeared. In April, the inflation rate, measured as the consumer price index CPI, was 0.3 percent.
But when Swedes tell the National Institute of Economic Research how high they feel inflation is right now, they answer on average a whopping 15.7 percent.
When the Riksbank sets its interest rate, they focus not only on what inflation is right now but also on expectations further ahead.
Professionals in the financial market believe that inflation will be around the target of 2 percent both in one and five years' time.
Ordinary consumers have a completely different opinion. According to the Swedish Business Survey, households respond that they expect inflation in a year to be 8.9 percent.
It is not unusual for people to perceive inflation as much higher than it is.
According to SCB, inflation peaked in February 2023, when it was 12 percent.
Households then responded that they perceived inflation as 20 percent.
When inflation was low, for example in 2014 and 2015 when it was around zero, Swedes responded that prices rose by 2.5 to 3 percent.
But the gap between actual and perceived inflation is now extremely high – around 15 percentage points. Inflation is like a ghost that lives on long after its death.
What is the reason for this?
In a speech last year, Anna Breman, who sits on the Riksbank's board of directors and thus helps set interest rates, stated that there has been a lot of new research on inflation and how we humans perceive it.
It shows, among other things, that we focus more on goods that are going up in price a lot than those that are getting cheaper, especially things that many people buy a lot of, such as energy and food.
Precisely the goods that rushed in the wake of the pandemic and Russia's invasion of Ukraine.
And the fact that we do not feel that inflation has fallen back, even though it statistically has, may be due partly to the fact that we tend to pay attention to things that are getting more expensive and miss things that have become cheaper, but also to the fact that we compare today's prices with what was the case before inflation took off.
There is also research that food prices are particularly important for people's perception of general inflation.
And since food, according to Statistics Sweden, is 30 percent more expensive today than at the beginning of 2022 and also took a leap upwards at the beginning of this year, it is not surprising that a general feeling has spread that "everything has become expensive" that affects Swedes' view of the economy.
Anna Breman notes that economists previously disregarded households' perceptions of inflation because it was so much higher than that of professionals - but that they have changed their mind. The experiences of ordinary people affect consumption, investment, how much is saved and thus the entire economy.
Two things that weigh on the Swedish economy are a number of lousy years for trade when consumption has fallen and for the construction industry when people no longer want to buy homes to the same extent as before.
Research shows that inflation shocks live on in people's memories for a long time. In the areas of Germany that experienced hyperinflation in the 1920s, expectations of inflation are higher than they are today, a hundred years later.
Of course, it is not really that bad in Sweden.
But one conclusion that can be drawn from all this is that if the Swedish economy is finally going to turn around, it would be very good if the grocery chains could start lowering their prices already this summer.
Don't feel pressured.
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