Temporary factors help push inflation over 2%

The Consumer Price Index (CPI) rose by 0.5% in July. The 12-month rate was 2.2%. Price increases on package holidays contributed 0.3 percentage point to the change, while increased prices on international flights and electricity contributed 0.2 percentage points each.  The underlying inflation rate (CPIF) rose from 1.9% in June to 2.4% in July, its highest level since December 2010.

The Swedish krona strengthened on the news while the stock market fell. The reaction is justifiable given that the inflation rate is over the 2.0% target set by the Riksbank, which could bring forward plans to raise the benchmark repo rate, argues DI.

But, even if the July data may lift the mood at the central bank, it is too early to celebrate. A number of temporary factors contributed to the increase, as did a new way of measuring inflation and tax hikes on electricity.

Fall in global markets a threat to Sweden’s GDP

Oxford Economics has said that a stock market correction could affect global growth; a 10% fall in global markets could have the potential to pull down growth and consumption in developed economies by as much as 0.3%.

The actual impact on consumption would vary from country to country, depending on the circumstances. However, economies with higher market capitalisations would be worst affected by the correction, argued the think tank, noting that Switzerland has an unusually high market capitalisation in relation to GDP. The same is true of Singapore, the United States and Sweden.

Few in parliament own shares

Only 32 of a total 362 politicians have declared shareholdings in listed companies, according to an excerpt from the Riksdag’s financial register. Joakim Bornold, from Nordnet, is surprised about the low figure.

H&M is the big favourite among those politicians who do hold shares. Sharing second place are SAS and the investment company Kinnevik. Furthermore a majority of shareholding politicians are alliance politicians while not a single Left Party politician holds shares.

Only one party leader, Jan Björklund has reported any holdings. The Liberal leader has invested in the bank SEB and in a Sweden fund.

Finance ministerial candidate Oscar Sjöstedt (SD) owns shares in the prospecting company Africa Oil, which Joakim Bornold considers to be controversial. “Africa Oil has, to say the least, a turbulent history and is a company that has been called into question a good deal, which means it is surprising that it turns up in a portfolio of this kind of politician.”

Big banks’ mortgage profits rising

The total net interest for Sweden’s big four banks amounted to around SEK 30 billion for the second quarter – an increase of over one billion kronor since last year. The profits come mainly from mortgages.

“This is a completely unreasonable figure,” says Håkan Larsson, housing economist at the Swedish Homeowners Association. Håkan Larsson says that the development is due to the low repo rate, which has meant there is a huge difference between the interest banks themselves pay and what they offer mortgage customers.

During the same period mortgages have grown in importance for banks. For Swedbank and Handelsbanken, the mortgage share of the group rocketed from 25% in 2010 to 49% and 42% respectively in 2015.

Håkan Larsson points out that the four big banks have very similar interest rates for mortgage customers, calling it a price-fixing cartel. He believes politicians ought to act and the state SBAB bank ought to lead the way by bringing down interest rates.

Many traders going to refuse cash

Two thirds of Sweden’s traders believe they will stop accepting cash by 2030, according to a new, as yet unpublished, report from the Royal Institute of Technology (KTH).

Niklas Arvidsson, lecturer in industrial dynamics at KTH, is one of the authors and predicts that Sweden will be a cashless society by 2030. “It is moving very quickly just now.”

According to the Swedish Trade Federation, 80% of all transactions in retail are currently made by card, and this is increasing constantly.

Interest rate unchanged

The central bank, the Riksbank, is leaving the benchmark interest rate, the repo rate, at a negative 0.5%. The decision was expected.

Riksbank governor, Stefan Ingves, said, “It is important that inflation is more permanently at two per cent and does not just touch on two per cent. For that reason it is pressing and important to continue with an expansive monetary policy for some time longer.”

The first increase in the repo rate is expected in the middle of 2018.

China trip to pave the way for new deals

Prime Minister Stefan Löfven is to begin a three-day trip to China next week, including a meeting with Chinese Prime Minister Li Keqiang, accompanied by Enterprise Minister Mikael Damberg, Trade Minister Ann Linde and Environment Minister Karolina Skog, along with a business delegation that includes Ericsson, ABB, Astra Zeneca, Scania and Volvo Cars and Volvo Group.

Sweden’s exports to China amounted to SKr 46 billion in 2016. During the first quarter this year exports grew by 33%, compared to the same period last year.

Mikael Damberg says that China’s efforts to move forward on the global political arena in terms of trade and climate makes it easier to find a shared agenda.

Moderates – corporate tax drop is a rise on the sly

Sweden is lowering corporate tax for the third time since 2009, now to 20% (see SPR 20/6 Early Ed.). However the Moderates are calling it a tax rise on the sly.

Finance Minister Magdalena Andersson wrote in a Dagens Industri (DI) debate article yesterday that the lower tax will be compensated for by limits to interest deductions.

The Moderates have welcomed the limits to the tax deduction, which aims to stop companies’ aggressive tax planning, although. Maria Malmer Stenergard, tax policy spokesperson for the Moderates, would have liked a larger cut in corporate tax as compensation.

Meanwhile the Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomes the tax decrease but is critical of limiting the right to a tax deduction.

“We are lowering corporate tax”

Today the Ministry of Finance is putting out a memorandum on new tax for the corporate sector, write Finance Minister Magdalena Andersson and deputy Finance Minister Per Bolund in Dagens Industri (DI).

It proposes a general rule for limiting tax deductions for interest in the corporate sector in order to increase tax neutrality between different forms of financing. The memorandum also includes other proposals such as new tax rules for financial leasing, new hybrid rules, and a primary deduction for rental properties. Additionally, the current interest rate deduction rules are to be tightened. The proposals are fully financed and are proposed to come into force on 1 July 2018.

As limiting the tax deduction for interest means that the tax regulations are tighter, it is proposed that companies are compensated by lowering corporate tax from 22 to 20 per cent. This lower rate is fully financed by tightening the other rule. Thus the proposal is a redistribution of total tax within business.

The proposal is out for consultation before the government makes a final decision.

Trump policy hitting Swedish export companies

After almost five months in the White House, Donald Trump’s trade policy is still unclear. This uncertainty is affecting Swedish export companies.

“The only concrete things we have seen is that he wants to renegotiate the North American free trade agreement Nafta, and that he has withdrawn the USA from TPP, the deal with Asia. We do not know more than this,” says Anna Stellinger, director general for the National Board of Trade. She continues, “Uncertainty is never positive. Not for trade and not for companies that want to invest.”

Anna Stellinger points out how important a market the USA is for Swedish companies. The board has calculated that 139,000 Swedish jobs are linked to Swedish exports to the USA.