Swedish Industry Wage Deal Seen as Too Modest to Help Riksbank

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

Sweden’s Unions Within Industry and the Swedish Association of Industrial Employers late Thursday agreed to a deal for a 2.2 percent total salary increase over one year, including a 0.2 percent contribution to the part-time pension system. The deal, which covers some 600,000 workers, is the first agreement to be reached in the collective wage negotiations and sets a benchmark for other sectors.

“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, said by phone. 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 said.

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, which has been below its 2 percent target for the past four years.

The Swedish Municipal Worker’s union, Kommunal, one of the largest, has already accepted the industry agreement as the benchmark.

“That’s positive and gives a picture of unity,” said Robert Bergqvist, chief economist at SEB AB, by phone. “This can be seen as a willingness to take responsibility, to support the competitiveness of Swedish industry.”

According to SEB the agreement was “probably somewhat on the low side of what the Riksbank hoped for.”

Bergqvist said that SEB’s payroll forecast for this year of 3.1 percent depends on whether the industry agreement really becomes the mark and affects the rest of the upcoming negotiations. Other unions are still sticking to their original, higher demands. Construction-workers union Byggnads, for example, aims for wage increases of 3.2 percent.

Danske Bank A/S said in a note that while the industry agreement is 0.4 percentage point higher than the previous agreement that is now expiring, “the level will still have to be considered as modest.”

To what extent “this ‘mark’ will be accepted by other parties is currently completely unclear,” the bank said.

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