Swedish industry wage agreements fall short of Riksbank expectations

The wage agreement reached between Swedish industrial unions and employers last week largely fall short of Riksbank expectations. It is on the lower side of what the Riksbank would have needed in order to reach its 2 percent inflation target, according to the country’s major banks.

With agreements at less than 2.2% y/y, wage drift will need to reach in excess of 2% to push inflation in line with the Riksbank inflation target. Wage drift of 2% was last seen, briefly, in 2001.

Sweden’s central bank has made an effort to raise wage expectations ahead of the negotiations. The bank has cut rates deep below zero and last year unleashed a quantitative easing program to revive inflation. The central bank will continue to be on full alert to do what it can to anchor the wage formation process at the inflation target (2%). Expectations are for the Riksbank to extend stimuli throughout 2016.

“This agreement was somewhat lower than we had expected and probably also lower than what the Riksbank had in mind,” Torbjoern Isaksson, an economist at Nordea Bank AB.

"That it’s a one year agreement is “a challenge” for the Riksbank, as it means it will need to continue to fan inflation expectations, Isaksson added.