Inflation and surging lending costs have dented private spending, an official report indicates © Getty Images/Drazen_

Retail sales in Sweden plunged the most on record last month, as inflation and soaring borrowing costs continued to squeeze consumers’ spending power.

In February, retail sales in the Nordic region’s largest economy slumped 9.4% compared to the same period of last year, driven by a decline in durable goods, which saw the biggest sales drop since 1992, Statistics Sweden reported on Wednesday.

Economists attribute the weak results to persisting pressure on households’ real disposable incomes and purchasing power, caused by the highest inflation in 30 years and continued interest rate hikes by the Swedish central bank.

“The current bout of inflation is clearly putting the retail sector under mounting pressure,” Nordea economist Gustav Helgesson wrote in a note. “Parts of the retail sector are already in a recession. Today’s report reinforces our view that private consumption will contract this year,” he added.

Sweden is going through one of the worst economic downturns in its modern history, with the inflation rate among the highest in Europe, and the highest outside Eastern Europe, economists say.

The country has also seen a drastic slump in the real estate sector, with home prices plunging to the lowest level in years, while consumer spending has plummeted due to the cost of living crisis.

Swedish GDP shrank 0.5% in the last three months of 2022, indicating that the country has already entered a recession.

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