Swedish inflation drop points to end of rate hikes, chance of early cut
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Headline inflation 3.6%, ex energy 5.4%
Ex energy below market and Riksbank forecasts
Boosts view rate hikes over
Markets pricing in cut by June
By Simon Johnson
STOCKHOLM, Dec 14 (Reuters) – Swedish inflation dropped faster than expected in November, data published on Thursday showed, increasing the likelihood interest rates have peaked and boosting markets’ hopes the Riksbank will start to ease monetary policy next year.
Consumer prices in Sweden, measured with a fixed interest rate, were up 3.6 percent from the same month last year, the statistics office (SCB) said on Thursday.
That was well below analysts expectations of 3.9%, though in line with the forecast of the Riksbank.
Stripping out volatile energy prices, a measure the central bank is putting extra weight on at the moment, inflation was 5.4%, well below a forecast by the Riksbank – which targets 2 percent CPIF inflation – and markets of 5.9%.
In October, inflation was 4.2% and 6.1% respectively.
“If this is the start of a more pronounced downturn in inflation … we feel more comfortable with our forecast of a first Riksbank cut in June, but now feel that the risk of an even earlier cut is on the table,” Swedbank said in a note.
At its most recent meeting in November, when it held the policy rate unchanged at 4.00%, the Riksbank said it could still hike again if the outlook for inflation deteriorated.
Even if that is not necessary, the central bank expects rates to remain at the current level well into 2025.
The central bank says it wants to be sure that inflation is under control. However, with the economy slowing and inflation falling rapidly, markets have a different view.
After the upbeat inflation data – and helped by a stronger crown currency – were pricing in a full 25 basis point cut by June next year.
Both the European Central Bank and the Federal Reserve in the United States are expected to move even more quickly to bring down borrowing costs.
The Riksbank announces its next policy decision on Feb. 1.
