Sweden Faces 24th Consecutive Month of High Inflation, Causing Economic Crisis
Inflation in Sweden has remained alarmingly high for the 24th month in a row, with a general price increase of 18.5% over two years, according to Statistics Sweden. This has significantly reduced purchasing power, with Swedes experiencing a nearly one-fifth decrease in their ability to buy goods and services. Compared to other western countries such as Denmark, Norway, Germany, and France, Sweden has one of the highest and most persistent inflation rates.
The primary responsibility of the Riksbank, Sweden’s central bank, is to maintain an inflation rate of 2% per year. However, for the past two years, the bank has failed to meet this target. Despite an increase in interest rates by the Riksbank and the expectation of another increase in September, the Swedish economy is headed for a crisis. In the second quarter of this year, Sweden’s GDP fell by 2.4%, making it the most crisis-ridden economy in Europe at the moment.
The depreciation of the Swedish krona against other currencies has further exacerbated the inflationary problem. The weakened currency has made imports more expensive, prolonging the inflationary misery. For instance, the euro currently costs SEK 11.84 and a dollar costs SEK 10.83, which are alarming figures.
Sweden’s high inflation rate is in stark contrast to neighboring countries. In July, Denmark had an inflation rate of 3.1%, Norway 5.4%, Germany 6.2%, and France 4.3%. Sweden not only experienced the highest peak in inflation but also suffered from prolonged periods of high inflation, according to a graph available on the Financial Times website.
The situation in Sweden cannot be blamed on irresponsible wage negotiations or unions. In fact, wage increases in Sweden are among the lowest in Europe. The combination of low wage increases and high inflation means that Swedish incomes are declining faster than in other countries.
The Riksbank’s attempts to combat inflation by raising interest rates have failed to yield the desired results. The interest rates have been increased from 0 to 3.75 percent, and another increase is expected in September. However, the Swedish economy continues to decline, with the real estate industry in trouble and construction at a standstill. Foreign investors are withdrawing from Sweden, further lowering the value of the krona.
The responsibility now falls on Finance Minister Elisabeth Svantesson to address the worsening economic situation in Sweden. The government has been criticized for its inaction and fear of driving up inflation. Unfortunately, the inflation crisis has led to alarm bells about cuts in welfare and fewer resources for municipalities and regions.
Economists have debated the best approach to tackle inflation. Some have suggested active government intervention to slow down price increases, while others have cautioned against such measures, drawing parallels to failed experiments in the 1970s. However, as inflation continues to erode people’s savings, the need for action becomes more apparent.
Spain has taken significant steps to bring down inflation, including abolishing food value-added tax, raising taxes for companies, and introducing price caps on energy and rents. In July, Spanish prices rose by 2.1%.
As Finance Minister Svantesson prepares to present the government’s autumn budget in a few weeks, she faces the challenging task of finding solutions to combat inflation and revive the Swedish economy.