Published: Less than 20 min ago
The inflation rate fell slightly in July.
But the experts regard it as a bump in the curve – food, electricity and mortgage interest are going to be more expensive this autumn.
– Today we had inflation of 8 percent and we think that towards the end of the year we are unfortunately at about 10 percent, says Robert Bergqvist, senior economist at SEB.
After a dark year for the world economy, small, small glimmers of light have begun to seep in.
In July, inflation in the US was 8.5 percent, which is a historically high level but lower than the previous month and lower than what analysts had expected. The announcement caused the stock markets to jump for joy.
In Sweden, both inflation expectations and inflation itself have moderated in July.
But if you exclude energy, the inflation rate rose from 6.1 percent in June to 6.6 in July. According to the Riksbank’s latest forecast, it would have been 5.8 percent by now.
The food: Biggest price increase since the 1980s
Food prices are what stand out with Friday’s inflation announcement, in a negative way. The price increase for food is the fastest since the mid-1980s, says Nordea’s chief economist Torbjörn Isaksson to TT. An image that SEB’s senior economist shares.
– There were Norwegian and Danish consumer prices on Wednesday which also surprised on the upside. Then it can be affected by the fact that we possibly have a higher willingness to pay during the summer, we go on vacation and accept certain price increases, and that makes it easier for companies to charge higher prices, says Robert Bergqvist.
The worst is yet to come for Swedish households, warns Michael Kärrberg, CEO of food price comparison app Foodrunners. He believes that the prices in the shops have not yet increased as much as the prices of food and beverage producers have increased.
“We can expect generally high impacts on consumer prices in 2022 and 2023,” says Michael Kärrberg in a press release.
But in the slightly longer term, Robert Bergqvist sees a possible improvement in food prices.
– Here in July alone, international food prices fell by 9 percent – and it is the fourth month in a row that food prices have fallen. It takes time before this takes hold and you see it in the store, but I still see on the international market that prices are being pushed down, says Robert Bergqvist.
American retail giant Walmart has noticed that consumers have started to opt out of expensive goods for cheaper variants. When goods are piled up, they may be sold out.
– I think there may be some surprises in terms of price reductions on certain goods. Maybe as early as this autumn, but at least towards the turn of the year.
Robert Bergqvist thinks it is important that you as a consumer react to increased prices. Both in the grocery store and when it comes to other consumption. Otherwise, you have raised your inflation expectations and are part of the process that creates inflation.
– It is important that we do not just sit back and accept price increases, but it is our actions that can affect prices, both upwards and downwards.
– I think we are heading in the direction where food prices can come down, but it is very difficult to say when, says Robert Bergqvist.
Electricity prices: War and climate crisis keep them up
Falling prices for electricity and fuel were what caused the July inflation to slow down, both in Sweden and the USA.
But electricity prices going down in the summer is standard, and under normal circumstances they should have gone down even more, says the senior economist.
– You could say that what keeps it up is war and climate. War because we have uncertainty about gas supplies, both here and now and in the future. And the climate as we have an ongoing climate crisis that is keeping temperatures up and forcing more air conditioning, in the US, Europe and China.
Behind the falling petrol and diesel prices is a cyclical factor. We are moving towards a recession and then the demand for fuel or oil decreases. OPEC countries are also under pressure not to cut production.
But Robert Bergqvist and SEB are concerned that Europe is on the brink of an energy crisis.
– What we will also have with us during the autumn is that we will not know how cold the winter will be. Long-term forecasts are very uncertain, so it will be until the end of the year or early 2023 before we know where we land. And that uncertainty means that the price will be kept up.
Right now, Russia is supplying 20 percent of the capacity for the Nord Stream 1 gas pipeline to Europe – and there is a risk that it will be cut off completely.
– Unfortunately, you have to have a very high level of preparedness so that gas and electricity prices can remain at high levels.
Rising mortgage interest – but what happens after the turn of the year?
The fact that the inflation rate decreased from 8.5 percent in June to 8 percent in July is not likely to make the Riksbank come to its senses before the next interest rate announcement in September. Most analysts believe that the policy rate will be doubled from the current 0.75 percent to 1.5 percent in September.
However, Handelsbanken believes in an increase of 0.5 percentage point, while Nordnet’s savings economist Frida Bratt believes in 0.75 percentage point and at the same time does not rule out an “intermediate increase”. Alternatively, the Riksbank strikes with a full percentage point increase in September.
– We at SEB believe that the Riksbank will increase by 0.75 percentage points on September 20. I think that picture has not been changed by today’s figure. Had the number surprised significantly more on the upside, it might have increased the demands on the Riksbank to act with an interest rate increase even before the almost regular meeting, says Robert Bergqvist, senior economist.
The September increase will not be the last.
– I think the Riksbank needs to raise the key interest rate to approximately 2 percent, then you can start discussing how to act from there.
When the key interest rate is raised, the banks’ variable mortgage interest rate hangs on at the same rate. At a policy interest rate of 2 percent, the average interest rate on mortgages ends up at around 3.5 percent.
How big is the risk that the Riksbank will have to continue raising after that?
– It may be that you need to go a little further. But I also believe that there is a possibility, based on how we have reasoned about inflation and the economy slowing down, that the Riksbank could either stay put or take some step to lower the interest rate next year. It is absolutely a possibility, there is talk that we can have such a turnaround in monetary policy, but it is a forecast surrounded by uncertainty, says Robert Bergqvist.
The banks’ fixed mortgage rates have long gone.
– If the market begins to believe more and more that we will be able to see interest rate cuts, for example in the second half of 2023, then there may be a possibility that the long-term fixed interest rates have reached a peak level and may drop in the future.
A bright spot for the Riksbank is the report from Kantar Prospera that came out yesterday. It showed that people’s expectations of future inflation were lower than feared.
– It is extremely positive for the Riksbank, because it shows that we are beginning to believe that the Riksbank’s monetary policy will actually succeed and contribute to bringing down inflation. So yesterday’s figure was perhaps slightly more important than today’s inflation data, says Robert Bergkvist at SEB.