Preliminary estimates released by Statistics Sweden indicate that Sweden's CPIF inflation more than doubled in September, a significant increase attributed to higher energy prices and a weaker krona. This development has reinforced the widespread expectation that the Riksbank, Sweden's central bank, will be compelled to raise its key policy rate in November.
Susanne Spector, chief economist at Danske Bank, affirmed this view, stating, "A rate hike in November was already more or less set in stone before this. This outcome does not change that." Spector anticipates that at least three rate increases will be necessary to manage the inflation currently impacting the Swedish economy, projecting a rise in the policy rate from the current 1.75 percent to 2.50 percent. Such an increase, if applied to a two million krona mortgage, would elevate annual interest costs by 15,000 kronor, excluding tax deductions.
Market traders are pricing in an almost 100 percent probability of five rate hikes, which would push the key policy rate up to 3.00 percent sometime during 2027-2028.
Spector also voiced criticism regarding the Riksbank's past decisions, arguing that the central bank should have joined other central banks in raising rates during its September meeting. "It would have made sense to raise in September to stay better aligned. That likely would have supported the krona, meaning higher energy prices would have increased less in kronor terms than they are doing now," she explained.
Conversely, Amanda Sundström, an interest rate strategist at SEB, offered a more dovish perspective. She highlighted that underlying inflation, which excludes energy prices from the CPIF measure, is not showing an upward trend and came in lower than anticipated for September. "If you look at those figures, Swedish inflation remains very low, especially compared to what we are seeing in other countries. Despite higher energy prices, price pressures in the rest of the economy remain very subdued," Sundström commented, adding that these pressures were "More subdued than we expected, and more subdued than the Riksbank expected." Despite this, SEB's economists also foresee three rate hikes from the Riksbank.
In summary, Statistics Sweden's preliminary figures suggest that both goods and energy prices saw greater-than-expected increases in September. Spector linked this to potential "large impact from spring supply disruptions," referencing ongoing conflicts in the Middle East and between Russia and Ukraine. However, she noted that "service prices came in lower than expected. That explains why underlying inflation remains flat."
The specific preliminary figures show Sweden's CPI inflation rising from 0.3 percent in August to 1.1 percent in September. CPIF, which strips out interest, increased from 0.7 percent in August to 1.5 percent in September. Meanwhile, CPIF-XE, which excludes energy prices, remained unchanged at 0.5 percent.
