Swedish Producer Prices Rise Most Since March 2022 as Energy Costs Surge

Producer prices rose 3.4 percent in September compared with the previous month, according to Statistics Sweden. The monthly increase was the highest since March 2022, when the inflation shock began to gather pace after the pandemic.

Compared with September last year, prices rose 11.2 percent, the highest rate since January 2023.

Expecting three interest rate hikes

But producer prices for consumer goods rose less in September, increasing 0.6 percent compared with the previous month. This confirms the picture that energy prices are currently rising rapidly, while broader inflationary pressure in the rest of the economy remains subdued, according to Amanda Sundström.

SEB’s economists - and many other analysts - expect the Swedish Central Bank to have already prepared for a series of interest rate hikes. The signals in the Swedish Central Bank’s speeches and minutes are clear, Sundström believes.

SEB’s main scenario is for three increases in the key interest rate, from today’s 1.75 percent to 2.50 percent, starting in November this year, with the third increase in May 2027.

Producer prices are what producers charge other companies. They can be an indicator of future price increases for consumers.

It will become more expensive, that’s for sure, says Sundström about the outlook for consumer and producer prices.

This in turn eats into purchasing power, dampening inflation and reducing the need for interest rate increases.

Unclear effect of new support measures

New fiscal measures to help households with higher electricity or fuel bills could prompt the Swedish Central Bank to raise interest rates even more, as the state would then be helping households pay higher prices. However, Sundström says the support could also reduce the need for rate hikes, as state aid could curb demands for wage compensation and inflation expectations in the economy.

Another important factor for the Swedish Central Bank is the ongoing wage negotiations. According to SEB economists, the scope for wage increases in the Swedish economy is just over 3 percent a year, depending on how it is calculated, and the unions are expected to present their demands in November.

I believe that the Swedish Central Bank is following this closely, says Sundström.