The Riksbank’s success in reviving inflation will depend on the generosity of Swedish employers.
Jockeying is under way as collective-bargaining agreements for 3 million public and private workers expire in 2016.
“If wage negotiations lead to agreements that give even lower wage increases than the current agreement, then it might become nearly impossible to get inflation back to target,” said Michael Bostroem, chief analyst at Danske Bank A/S in Stockholm. The Riksbank’s unprecedented move in recent months should be seen in light of those wage talks, he said.
The Riksbank last month cut its benchmark rate to a record minus 0.25 percent and also quadrupled the size of a bond-purchasing program. Consumer prices fell for most of last year and are far below the bank’s 2 percent inflation target.
Listening to employers, policy makers at the bank may be in for a tough sell to get the needed wage increases. Employers argue that excessive increases in recent years have hurt their competitiveness and profit margins.
The Confederation of Swedish Enterprise, which represents 60,000 companies, says Swedes are getting “real wage increases in a way that almost no other country has had.”
“We’re in a situation where we haven’t had inflation for several years but where we’ve still increased wages,” Carola Lemne, the confederation’s CEO, said in March. “You could say we have a debt to collect even if inflation starts to rise.”
The Association of Swedish Engineering Industries, which represents 3,700 companies such as Ericsson AB, Electrolux AB, SKF AB and Volvo AB, says restoring a competitive edge will be its starting point in the talks rather than helping the Riksbank.
“The inflation target has been set up because it was seen as a realistic goal, but it has turned out, due to different circumstances, that it’s no longer realistic,” Anders Weihe, the association’s chief negotiator, said by phone. It would be “desirable to negotiate contracts that took back some of the erroneously high real wage increases,” he said.
A Prospera expectations survey in March showed inflation was seen at 1.1 percent in two years and at 1.7 percent in five years. At the same time, one-year and two-year wage-increase expectations fell to 2.1 percent in March, from 2.2 percent.
“There’s already a discussion between labor unions and employer organizations if they can presuppose annual consumer price increases of 2 percent,” Bostroem said.
The Riksbank is counting on wage increases to accelerate.
In its monetary policy report in February, the bank said that “wages are expected to increase more rapidly as resource utilization rises and it will be easier for the companies to pass on their cost increases.”
While the agreed increase for 2015 amounts to 2.3 percent, according to the National Mediation Office, “local wage formation normally leads to final wage levels being higher,” the bank said. It estimates that wages, according to the short-term statistics, will rise 2.9 percent in 2015 and about 3.5 percent in 2016 and 2017.
The Swedish Trade Union Confederation, LO, said the labor market must join forces to help the Riksbank boost inflation.
It would be just as wrong for unions to demand lower increases when inflation is below the target as it was incorrect to ask for higher wages when inflation exceeded the goal in the 1990s, Torbjoern Johansson, negotiating secretary at LO, said by phone.
“We must base our wage demands on the inflation target” since otherwise “the Riksbank won’t succeed” in lifting inflation, he said. “We should support their struggle -- that’s our mission right now.”