Inflation eases in Sweden as hopes of rate cut from Riksbank grow

Prices in Sweden rose at a slower pace in December compared to the prior month, fuelling predictions that the country’s central bank will cut interest rates at its next monetary policy meeting on 28 January.

Preliminary data published on Wednesday showed CPIF at 1.5% in December, compared to 1.8% in November.

CPIF looks at how much prices have risen excluding effects caused by fluctuating mortgage rates.

Sweden’s CPIF-XE, which excludes volatile energy prices as well as mortgage rate changes, came in at 2.1% in December.

That’s compared to 2.4% in November.

CPI, a measure of inflation which includes energy and mortgage changes, was recorded at 0.8% according to preliminary estimates – a cooling from 1.6% in November.

In Sweden, the change in CPI is the most common measure of inflation, but the CPIF is the measure that the Riksbank primarily uses to guide its monetary policy decisions.

Wednesday’s data is feeding predictions that the central bank will lower borrowing costs later this month, following five interest rate cuts last year.

“If the outlook for inflation and economic activity remains unchanged, the policy rate may be cut once again during the first half of 2025,” the Riksbank said in a statement in December.

These comments came after a lowering of the key policy rate by 25 basis points.

Although inflation is now below the bank’s 2% target after spiking in late 2022, policymakers added a note of caution.

“The interest rate has been reduced rapidly and monetary policy affects the economy with a lag. This argues for a more tentative approach when monetary policy is formulated going forward,” the statement continued.

Sweden is due to publish more economic data this Friday, including figures on household consumption and industrial production.

Household consumption rose in July and August on a month-to-month basis, raising hopes of economic recovery, although consumption is still down on an annual basis.

Consumption also decreased on a monthly basis in September and October, pushing some voices to call for greater fiscal stimulus.