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Swedish January inflation up as expected, rate cut set for mid-year
Global Banking & Finance Review®
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By Simon Johnson
STOCKHOLM (Reuters) – Headline Swedish inflation picked up pace as expected in January, data showed on Monday, and if the increase proves temporary it is unlikely to derail the central bank’s plans to begin cutting interest rates in mid-year.
Consumer prices in Sweden, measured with a fixed interest rate, fell 0.3% in January from the previous month and were up 3.3% from the same month last year, the statistics office (SCB) said.
Stripping out volatile energy prices, inflation was 4.4%.
The numbers were broadly in line with expectations of the Riksbank and analysts.
“We still see inflation falling in the coming months and becoming too low later this year,” Nordea economist Torbjorn Isaksson said. “We stick to our forecast that the Riksbank will cut rates in May.”
Headline inflation had been expected to pick up due to base effects, mostly energy prices.
The central bank targets 2% CPIF inflation.
The pace of inflation has dropped sharply since climbing to over 10% at the end of 2022 and after two years of rapid policy tightening, the Riksbank said it could start to cut rates from the current 4.00% soon – possibly as early as next month, although May or June are seen as more likely.
However, policy makers are likely to proceed cautiously.
The Riksbank remains concerned the downward trend in inflation could reverse with geopolitical tensions, a weaker crown currency and corporate pricing plans all on its radar.
The Swedish crown was slightly stronger against the euro after the data.
Markets have been gradually pushing back expectations for the first cut and how quickly the Riksbank will move to ease policy.
A full cut is not priced in by June and markets expect the policy rate to end the year around 3.35%.
In November – the last time the Riksbank made a forecast for inflation – it saw the headline figure at 3.15% in January.
Excluding volatile energy prices – the measure the Riksbank is looking most closely at – inflation was expected to be 4.5%.
Analysts saw headline inflation at 3.1% and, excluding energy, at 4.4%.
In December, the figures were 2.3% and 5.3% respectively.
(Reporting by Simon Johnson, editing by Terje Solsvik, Niklas Pollard, Bernadette Baum and Ed Osmond)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to maintain stable economic growth.
A central bank is a financial institution that manages a country's currency, money supply, and interest rates. It oversees the banking system and implements monetary policy.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and economic conditions.
Monetary policy is the process by which a central bank manages the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
The consumer price index (CPI) measures the average change over time in the prices paid by consumers for a basket of goods and services. It is a key indicator of inflation.
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