A two-year wage deal reached by Swedish labor market parties will likely be welcomed by the country’s central bank as it attempts to bring soaring inflation under control, according to economists.
(Bloomberg) — A two-year wage deal reached by Swedish labor market parties will likely be welcomed by the country’s central bank as it attempts to bring soaring inflation under control, according to economists.
The agreement, which sets benchmark for the rest of the labor market, put total pay increase for this year and next at 7.4% — the highest level since the coordination of the wage agreements in the industrial sector started in 1997. Still, there will be more time for price growth to slow before the wages have to be negotiated again.
“The two-year deal will likely be a relief for the bank,” Susanne Spector, an economist at Nordea Bank Abp, said in a note to clients. “On the margin, this could make the board slightly more patient in its fight against inflation.”
That view chimed with Swedbank AB economist Emma Paulsson, who said in a note that the “Riksbank can breathe a sigh of relief” in reference to the length of the agreement.
“The worry for a potential wage-price spiral becomes less pronounced, even though the relatively high level of the wage increases may add some moderate inflationary pressure,” Paulsson said.
Even as the Swedish central bank has raised interest rates rapidly since April last year, underlying inflation has continued to accelerate in the Nordic nation. A key concern for Riksbank Governor Erik Thedeen and his colleagues had been that workers would demand full compensation for increasing prices — as has been the case in Germany.
The Riksbank’s next benchmark rate decision will take place on April 26, and the policy makers aren’t scheduled to comment on the developments before then. Bloomberg economists expect the bank to lift its key rate by a total of 75 basis points to 3.75% over the next two meetings, and for it to stay there through the first half of 2024.
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