Response to interpellation 2023/24:142 on inflation and changed pricing behavior in the business sector
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
1 M argues that the profit margin in the business sector has risen and that the government, through a restrained fiscal policy, is not hindering the Riksbank from lowering inflation 1. 2 M emphasizes that the business sector has a responsibility not to raise prices more than necessary and that the government has tightened the monitoring of price formation 2. 3 M claims that the government has acted correctly and that Sweden has indexed compensation systems that compensate for inflation 3. 4 S argues that Sweden has higher inflation than neighboring countries and that companies have passed costs on to households 4. 5 S proposes a food price commission as well as a bank tax on excess profits 5. S believes that the government's passivity has led to Sweden becoming poorer and proposes extra investments in child allowance and increased maintenance support. 6 M argues that they are actively working to press down inflation, want to facilitate bank switches, ensure that authorities have resources to audit the industries, and proposes tax cuts for workers and pensioners 6.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! I have been asked whether it is problematic that the profit share has increased to high levels while the wage share has fallen, and what economic policy measures, in addition to stabilization policies, the government will take if inflation becomes persistent due to the changed pricing behavior in the business sector.
The profit margin in the business sector has risen in recent years and was clearly higher than normal in 2022. However, there is a large variation between different industries. A relatively large part of the increase in the profit margin has occurred among companies with large exports, where international price movements have been favorable. At the same time, the Swedish krona has been weak, which reinforces this effect. Even in other countries, the profit margin has risen significantly.
Inflation has begun to trend downwards, but core inflation is still high. Combating inflation remains a priority for the government, and therefore we presented a restrained budget for 2024. But combating inflation requires more actors to take responsibility: the Riksbank through monetary policy and the parties in the labor market through a responsible collective bargaining movement. The business community also has a responsibility not to raise prices more than the situation requires.
The government's policy prevents inflation from gaining a foothold. Through a restrained and well-balanced fiscal policy, the government ensures that fiscal policy does not hinder the Riksbank from bringing down inflation. Bringing down inflation quickly is important. Otherwise, the risk is that households and companies begin to expect higher inflation and adjust their behavior accordingly. That, in itself, can lead to inflation persisting.
Mikael Damberg (S)
Madam Speaker! Thank you, Minister for Finance, for the answer!
The background to this interpellation is that the Swedish economy is currently grappling with tough challenges. We are in a recession, and GDP is expected to fall. Sweden stands out in an international context with poor growth prospects from a European perspective and higher inflation than many comparable countries in recent years. Prices have actually increased twice as much in Sweden as in our neighboring country Denmark. This means that Sweden is currently becoming poorer and that households are being pressured very hard.
Just as the Minister for Finance describes, inflation remains high, even though it is now falling, which is good. But a reflection regarding the wave of inflation that we have been hit by is that it seems to differ from previous waves of inflation. We have had the Riksbank here in the Riksdag and had a dialogue with them. They have described it as that previous inflation shocks have often been driven by wage inflation, that is to say that wage movements have led to inflation which has led to new wage increases and inflation. One has thus ended up in wage spirals that have driven up inflation.
This time, the Riksbank notes that a central cause behind the high inflation is that companies have passed on their cost increases to consumers to a greater extent than was perhaps thought and thus increased their prices more than was expected. This has led to the profit share in the business sector increasing overall and the wage share decreasing.
At the same time as households have been pressured by the fact that their wages have not increased as much as in many other countries, thanks to responsible parties who have worked to ensure that the inflation target is maintained, we have also seen a development where companies have passed the costs on to the households so that they have had to pay for this inflation economy twice over.
Then I asked questions about how the government views this. The Minister for Finance is a bit too cautious, I think, in her answer. She does note, however, that the business community also has a responsibility not to raise prices more than the situation requires. I think that is good.
Then it was my second question. Has the Ministry of Finance and the Minister for Finance gained any experience so far? Were there things and matters that could have been done so that we would not end up in a situation where the wage share is low and thus the profit share is high in such a crisis economy? Would there have been other tools to resort to from the government's side? This I wonder above all considering whether it should turn out that we end up in a situation where inflation bites itself into a higher level. I hope that it does not become so. Above all, the parties have taken a great responsibility so that we do not end up in that again.
My question to the Minister for Finance remains: Which tools would the Minister for Finance have wanted to use to avoid the situation that Sweden has now found itself in?
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Thank you, Mikael Damberg, for an important question that encompasses a great deal! I note right now that many have a lump in their stomachs. Christmas is approaching, and for many, it is incredibly tough when they have to review their finances. How is one to afford Christmas presents for the children, and how can one even have Christmas food on the table?
Inflation is a poison for the economy. I know that Mikael Damberg and I share that view. It hits people hard in different ways. Everyone is affected but in different ways.
It is pleasing that inflation has begun to trend downwards. It is about the fight against inflation. It is about the responsibility that the parties take, which Mikael Damberg also mentions. It is about the role of monetary policy, about what fiscal policy does, but also about other things. Inflation is trending downwards, and that is fundamentally very good.
But still, inflation, especially the underlying inflation, is too high. I think that is an important point. It is at a harmful level, and it is very clear right now that this is spread widely throughout the entire economy. It is not a single industry that is driving the development.
When I say that the business community also has a responsibility to take, I mean it. It is very important that prices are not raised more than justified. Of course, many companies, small as well as large, are also affected by increased energy costs and by input goods becoming more expensive. But it is important to follow this and ensure that the increase does not become greater than what can be expected.
Then I would like to have said that on an aggregate level, just as this interpellation is about, we have now seen high profit margins. Some companies, for various reasons, have hardly been able to increase prices even though they have faced cost increases, and they have had it very tough. At the same time, we have seen others who have increased prices. Some price increases are certainly justified, others are not.
In March, I called the food giants to the Ministry of Finance and emphasized that they needed to take responsibility for not raising prices more than necessary. It is the same responsibility that the wage earners have taken. I also had conversations with the banking giants during the summer when we saw that the deposit rate and the lending rate were not in sync at all. We see that the banks and many companies are making very large profits. Of course, it stands out, and one wonders what responsibility they are taking.
But I want to say that the government is not just talking. It is important to talk with the companies, both banks and food giants. But we also back it up with measures. We have, for example, tightened the monitoring of price formation in the Swedish economy, especially in industries with lacking competition. We have provided funds to Konkurrensverket specifically for increased supervision. Furthermore, the government intends to investigate the possibility of increased tools for exactly this. It is important to follow this development very closely.
Yes, we have talked and spoken. We have also ensured that there are better tools, and the fiscal policy as such has counteracted a further increased inflation.
Mikael Damberg (S)
Madam Speaker! I also asked this question because there is a distribution aspect to this. The OECD notes in its review of inflation and wage increases across the world that it has not become an outcome that has been particularly fair, but those with the toughest conditions have often borne the heaviest burden of the inflation.
The fact is that Sweden stands out in this country comparison. Hungary is the only country that has had a worse distribution policy development than Sweden linked to inflation and the cost increase. This holds up upon reflection. Have the measures taken by the government been sufficient? Does one think this has worked? We can compare price increases from January 2022 onwards. Then we see that we have had the worst development when it comes to increased costs compared to our neighboring countries and the eurozone. Then one must ask the question: Did the talks with the food industry work? Did the talks with the banks work, given the profit development that the banks have had and the enormous development when it comes to excess profits that have been achieved there?
I am completely for giving more money to Konkurrensverket so that they can review the pricing, but so far it does not seem to have had an effect regarding the price increases. I believe that this requires some kind of reflection from the government.
We have demanded several things along the way. When we saw that prices were actually increasing faster in Sweden than in our Nordic neighboring countries, we proposed a food price commission to put additional pressure. It would be a state commission that examines this. The different links in the food sector should not be able to blame each other. When they do that, prices can be raised, and no one is responsible to the end customer.
We proposed last year that a part of the profits from the energy sector should be returned to the households. There, Sweden became last and worst in the implementation of the EU legislation. Thus, during the price increase this winter last year, the opportunity to return money to the households was actually missed. It was a missed opportunity from the government's side.
Now, we on the banking side have proposed that SBAB can work even more clearly with increasing competition. We have also proposed a bank tax on the profits so that the money can be passed back directly to households to facilitate things in this tough economic environment.
But the government believes that it will lead to a good result if one is passive and does not counteract the Riksbank. So far, that policy has not been very successful. We have had a higher price increase than our surroundings. We have had a poorer distribution effect compared to the surroundings. Sweden stands out in terms of poorer growth than the rest of Europe.
Is there any form of self-criticism from the Finance Minister? Has one perhaps been too passive and thereby missed the chance to actually achieve a better development in Sweden during this cost crisis?
Finansministern Elisabeth Svantesson (M)
Madam Speaker! I am often self-critical when I discover, which I do sometimes, that I am wrong. It happens from time to time. But just when it concerns the fight against inflation and what we are now doing in the Swedish economy, I mean that the government has acted correctly.
Firstly, it matters that we spoke with, for example, the food giants. We saw a shift there. Right now, it is not food prices that are driving inflation. It is service prices. Right now, it is, for example, hotels or veterinary costs and a bit of other things that are driving up inflation. I am following this extremely closely now. This is a part of the inflation.
The second part of the inflation is that we have a weak krona. We have had it for a long time, trend-wise since 2013, but especially now when there is economic uncertainty. We have a small economy and a small currency. Then we also see that we import a part of the inflation, which is extremely problematic. That is why we must continue with the policy that is about being restrained while—here I want to answer regarding the distribution issue—supporting households.
This year, 2023, 40 billion kronor have gone back to households - through electricity support but also through fuel tax reductions and other types of support. It is 40 billion. Despite the fact that we have presented a restrained and neutral budget in that respect, it is a large amount of support.
Secondly, unlike many other OECD countries, Sweden has compensation systems that are indexed correctly. They simply follow inflation. This means that those who receive social assistance or a guaranteed pension are actually compensated to a large extent for inflation. The person who is a nursing assistant or the person who works as a construction worker is not compensated in that way but has, on the contrary, now seen their real wages decrease significantly. That is also why we are lowering the tax next year.
I mean that there is a fairly solid distribution thought in our indexing systems that we perhaps haven't thought about as much until inflation became very high.
If it is anything, it is that the government is passive. This is an issue that I have worked on from morning to night, 24/7, since I got this job. And I am extremely determined when it comes to us turning the development around.
We see now that inflation is going down and there are good signs of this. I will continue to follow the issue. It is quite obvious. Unfortunately, we also see now that global demand is starting to dampen. We are in a recession that risks becoming deeper.
The National Institute of Economic Research assesses in its forecast, which arrived only a few months ago, that the profit share for that reason will fall both this year and next year, that is to say that inflation will continue to fall.
But it does not happen automatically. It happens through active politics. It happens by everyone taking their responsibility. Mikael Damberg can be calm. I will follow the developments. But I will also act as I have done so far in politics and with money.
Mikael Damberg (S)
Madam Speaker! I do not doubt that the Minister for Finance does not like inflation and wants to combat it. I believe we are in complete agreement on that.
My point was that so far Sweden has not succeeded as well as its neighboring countries and not as well as the eurozone. I hope that this will now subside, not least because we should have better conditions in the long term to manage it.
We have that primarily because we are entering a worse economic situation than in many other European countries. We have a very bad economic situation ahead of us. Furthermore, we have responsible parties who ensure that the wage increases do not trigger inflation. Long-term, we should have good conditions.
But until now, we have had higher price increases than in our neighboring countries and the eurozone. It does not seem that the talks that Svantesson speaks about have worked so well.
It is a bit funny to say that talks work. In what way have the banks' profit margins been affected by the talks? I cannot really see that. In the first three quarters of this year, the bank profits have been 120 billion kronor.
Those who pay for the bank profits are the households in the form of the difference in interest margin between the interest we pay on loans and the interest we receive on savings accounts. It is the households who also pay these profits.
I mean that the government has also been very passive in the distribution policy. There are things that are not indexed, for example child allowance. There, we have proposed extra investments in child allowance.
In our budget, we are now proposing an extra payment of child allowance. We have proposed increased maintenance support that goes to the single parents. It is possible to do more if one takes this issue seriously and is active.
I mean that the government's passivity during the cost crisis has led to Sweden having a worse and more expensive development than many of its neighboring countries. It has not been good for Sweden. Above all, Sweden has become poorer, and many households have seen their finances become much smaller.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Thank you again, Mikael Damberg, for the interpellation! It is important to discuss these issues. They are, to say the least, highly topical. Unfortunately, it is not over yet.
We have not completed the final round against inflation. I am pleased that we share that view. There are many who are now insisting and think that we should be more expansive in various ways.
I met the food giants. We noticed a difference in the prices. That was the case. We have met and spoken with the banks. I completely share the view that their profits are brutally glaring.
What we can do now is to facilitate switching banks. Unfortunately, there is a sluggishness. Many experience it as difficult. That is why we are now ensuring that the rules for the interest rate differential compensation are changed. It will become easier and cheaper to switch banks if one has loans at one place. One simply takes the loan with them to another bank.
As I said, we also ensure that our authorities have the right resources to truly scrutinize the industries. They and the banks have much more to do.
Madam Speaker! In conclusion, so late in the day, we are working to make it easier for people to get through this time. It is a difficult time. The most important thing we do, as I began by saying, is to push down inflation, and more must do so.
It is of course a matter of ensuring that those who have it toughest receive the support they need. Even in the budget that comes next year, we facilitate things for households through a tax cut. There will be a tax reduction for everyone who works and all pensioners who have worked so that one can manage the situation more easily.
It will be tough for a while longer. But we are actively working to press down inflation and to ease the burden for households so that we can get through this time together.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.