High Summer Costs Delay Swedish Interest Rate Cut

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High Summer Costs Delay Swedish Interest Rate Cut
Photo: Axel Narving/TT

No reduction now, but maybe in September. That's what economists' guesses look like ahead of the Swedish Central Bank's interest rate announcement on Wednesday.

Actually, an interest rate cut would be needed already now, since the Swedish economy is running on low fuel, and more fuel is needed to get the households' purchasing power going.

If you think that the interest rate will anyway need to be cut sometime more during the year. Then you can as well do it now directly, says the trade union Unionen's chief economist Tobias Brännemo, who anyway does not believe that the Swedish Central Bank will follow his advice.

Too high inflation

This is because the inflation, which has risen during the summer to 3.0 percent according to the Swedish Central Bank's measure KPIF, is probably too high for the Swedish Central Bank's members to press the cut button already now. This seems to be what most analysts agree on.

There are counteracting forces. Partly, the growth has continued to falter and the labor market has not really shown signs of turning. At the same time, the inflation during the summer has become a little higher than what the Swedish Central Bank calculated with, says Olle Holmgren, inflation and interest rate analyst at SEB.

But there is a lot that suggests that the high summer inflation is temporary. Travel and typical summer food have pushed up the price increase rate a bit extra.

"Reason for concern"

–But it is still more summer inflation than expected. Which I think is reason for concern, says Susanne Spector, chief economist at Danske Bank.

Tobias Brännemo makes a partially different assessment. Since SCB in its inflation figures has given summer travel a heavier post in the basket than last year, it pushes up the price increase rate a bit extra, whole 0.65 percentage points. Then the inflation would be around 2.3 percent, according to his way of counting and thinking.

If you take that into account, the inflation is only marginally above the target of 2 percent, says Brännemo who therefore thinks it is okay to cut the interest rate.

Can come later

At the last interest rate meeting in June, when the interest rate was cut 0.25 percentage points to 2.0 percent, the Swedish Central Bank flagged that there may be an interest rate cut to come. Olle Holmgren believes that the Swedish Central Bank's assessment remains. But the economic community is somewhat divided in its view of where the interest rate is heading for the rest of the year. Several believe in a cut in September because the economy needs a kick in the back.

But it is not Danske Bank's main scenario. Susanne Spector sees no more interest rate cuts this year, unless the economy goes even worse than expected.

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By TTEnglish edition by Sweden Herald, adapted for local and international readers

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