Swedish Grocers Set to Deliver The Inflation The Riksbank Craves
At least Swedish central bank Governor Stefan Ingves could be shopping happily in the grocery aisle next year.
But the remainder of Swedes is likely to grumble as the weak krona drives up food costs, in particular the imported European vegetables the Nordic nation depends on during the cold winter months. The No. 2 grocery chain operator, Axfood AB, which runs the Hemkop and Willys stores, says food price gains may surpass this year’s 1 percent to 2 percent.
“There’s a risk that food inflation is higher next year, and if Ingves gets his way it’ll be 2 percent or even higher than 2 percent,” Chief Executive Officer Anders Stralman said in an interview earlier this month. “The most important factor for food-price inflation is the development of the krona. If it weakens against the dollar and the euro, import prices will become more expensive. We must pass that on to customers because margins are so thin.”
Ingves and his fellow policy makers are coming under increased questioning over their unprecedented stimulus measures, which last month drove the krona to a six-year low against the euro. The central bank has cut its benchmark interest rate deep below zero and unleashed a bond buying program to spark inflation toward a 2 percent target it hasn’t reached for five years.
The bank will get the latest insight into whether its policies are working on Tuesday, when Statistics Sweden publishes its consumer price index for November. Economists forecast that headline inflation accelerated to an annual 1.4 percent from 1.2 percent in October and that underlying consumer prices rose 1.6 percent versus 1.4 percent in October.
According to Nordea Bank AB, food accounts for some 14 percent of total CPI. It expects food prices to have continued to rise somewhat in November.
Food prices could in fact “surprise a bit on the upside,” in November and over the following two months, said Olle Holmgren, an economist at SEB AB. “Food prices have started to rise a little bit in Europe, a little bit faster, and that also affects us.”
While that’s helpful for the Riksbank, policy makers should be careful what they wish for.
There are already signs that Swedes are becoming more careful with their money amid uncertainty in the wake of the Brexit vote and Donald Trump’s victory in the U.S. presidential election, according to Stralman.
They are increasingly putting money aside at a time when rising housing prices and stricter rules to pay down mortgages eat into their incomes. Add rising food prices to that development, and consumption could take a hit, he said.
Domestic consumption has over the past years supplanted exports as the main driver of the Swedish economy because demand for its goods remains weak in Europe.
The head of ICA Gruppen AB, the largest grocery chain, agrees that the weak krona could press up prices further.
"All else equal, if the krona remains this weak it will over time hit consumer prices since a lot of the goods we sell are imported," Chief Executive Officer Per Stromberg said in an interview on Dec. 8. "If it’s a temporary variation, it may not lead to any price increases, but if it continues for six months it will be felt."
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.