Swedish CPIF inflation fell to 0.7 percent in July, according to the final figures from Statistics Sweden released today, August 13. CPI came in at a ridiculous 0.2 percent. Both sit miles from the Riksbank’s 2 percent target. (Source: Statistics Sweden)

The main reason? Significantly lower energy and fuel prices. This despite the ongoing conflict and disruptions in the Strait of Hormuz.

What actually moved the needle at the pump was the current government’s temporary cuts in the energy tax on gasoline and diesel, plus a SEK 2.40 per litre reduction in the carbon dioxide tax component. Lower the tax, and the price falls. Radical concept.

Here’s the part most politicians prefer not to discuss: Swedish fuel taxes are subject to 25 percent VAT. So when the state raises the energy tax or the carbon tax, it also collects an extra 25 percent on top of that tax. It’s a tax on the tax. Every automatic increase gets amplified. It becomes a built-in compounding mechanism that feeds straight into measured inflation.

This is not an accident. The carbon dioxide tax was introduced in 1991 under Ingvar Carlsson’s Social Democratic government. Under Göran Persson came the green tax shift in the early 2000s – higher CO₂ tax, partially lower energy tax, net effect still higher environmental taxation. Then from 2017, under Stefan Löfven’s Social Democratic government with Green Party support, they introduced the automatic annual increase of CPI + 2 percentage points. No need for a fresh parliamentary fight every year. Just let the machine keep raising the taxes – and the 25 percent VAT on those taxes.

You cannot keep stacking taxes that are themselves taxed at 25 percent and then act surprised when inflation refuses to stay at 2 percent.

Meanwhile the Riksbank’s main tool – higher interest rates – hits households through mortgage costs and higher living expenses. In a country where so many have floating-rate loans, the rate weapon itself becomes part of the cost pressure it is supposed to fight. The one thing that actually delivered lower inflation this summer was not another rate decision. It was a tax cut.

It will be interesting to see how Swedish voters weigh this on September 13, 2026. Do they want the side that keeps building automatic tax machines with VAT on top, or the side that at least temporarily showed that lower taxes can lower inflation?

What’s your take – temporary relief that actually worked, or just another pause before the next automatic hike? Leave a comment. And if you want more unfiltered takes on Swedish taxes, inflation and political theatre, stick around at dewlar.me.