Taylor Swift can drive up Swedish inflation

(E24) A pair of northern Norwegian twins, glitter and cowboy hats can drive the price increase in Sweden. The key interest rate will be set next week.

During two hectic weeks in May, the Swedes will host the Eurovision Song Contest and welcome world star Taylor Swift.

Swift, which has previously helped lift the gross domestic product the gross domestic productThe sum of all goods and services produced in a country during a year to Singapore with his concerts, will hold three concerts at the Stordalen-owned Strawberry Arena in Stockholm in May.

Already in March, Stockholm’s Chamber of Commerce reported that concertgoers are expected to leave half a billion during their stay in Stockholm.

Now a new analysis made by the chamber of commerce shows that flight and hotel prices are increasing sharply in Stockholm.

Who can we trust?

In the southern Swedish city of Malmö, the stage is set for Eurovision. The festival, where the northern Norwegian twins Marcus and Martinus will defend the honor of the Swedes, lasts for a whole week.

The head of the hotel chain HKC Hotels, Marcus Østlundh, tells the newspaper Dagens Industri that hotel prices on the hottest nights will increase by 200 per cent compared to the previous year.

In Sweden, economists are unsure whether the key interest rate will be cut at the rate meeting on Wednesday, or whether the Swedish central bank, the Riksbanken, will wait further.

The experts E24 has spoken to believe that Swift and Eurovision will not affect the central bank, but the margins are small.

– We’ll see

The head of inflation at the Swedish statistics authority SCB, John Eliasson tells E24 that major events can temporarily raise the general price level by 0.1 to 0.2 percentage points, without necessarily affecting inflation.

– It is primarily via hotel prices that you can see that major events can have an effect on inflation, he says.

Last year Beyoncé became accused of fueling inflation in Sweden. It happened after she had held two concerts in Stockholm.

In fact, she was responsible for an increase of as much as 0.2 per cent in the May index, said chief economist Michael Grahn at Danske Bank.

– If Taylor Swift is to affect inflation in May this year, hotel prices must be significantly higher than they were last year at the same time, when Beyoncé was in Stockholm, says Eliasson to E24.

– It is not enough that the prices are as high as last year. We’ll see if that happens.

– Difficult to quantify the effect

Senior economist Robert Bergquist at SEB does not think the concerts and parties will influence the Riksbank’s decision.

– We note that the prices are increased in connection with these events. We call the phenomenon “kulflation” in Swedish.

“Kulflation” is a combination of the Swedish word “kul”, which means “fun” in Norwegian, and “inflation”. A Norwegian translation could be “gøyflasjon”, without that word being found in the Norwegian dictionary – yet.

– However, it is difficult to quantify the effect, says Bergquist, who has long believed that the Swedish key interest rate should be cut in May. He still thinks so.

SEB believes in four interest rate cuts in Sweden this year.

The Swedish Riksbank opens for interest rate cuts in May

– One time effect

Norwegian Lars Kristian Feste is fixed income manager at Swedish Öhman Fonder. He says the events of May can affect inflation.

– However, this will not affect the Riksbank’s interest rate setting, as it is a one-off effect, he says.

– Another relationship with Swedish inflation is charter tourism or package holidays, this affects inflation from time to time without the Riksbank paying any significant attention to this.

– Suffers the anguish of the election

Feste says the market has an imminent belief that the Riksbank will lower interest rates next week.

– I still believe that they will wait until June, as they have both the American central bank (Fed) and the European central bank (ESB)’s decision behind them.

He also points out that the Riksbank will come out with a new monetary policy report and has several key figures to rely on later this summer.

– As the Riksbank has been explicit that there may be a reduction in May or June, the Swedish krone has gone from 11.20 to now 11.70 for one euro, and this is at the limit of what they can allow. If the krone rises to NOK 11.80 for one euro in the coming week, I think they will suffer the agony of the election, he says.