Pace of Swedish inflation dips in February, rate cut looms

• Headline inflation slows to 2.5% vs Feb 2023
• Excluding energy prices inflation was 3.5%
• Outcome better than Riksbank, analysts’forecasts
• Data supports hopes for rate cut by summer

By Simon Johnson

STOCKHOLM, March 14 (Reuters) – Sweden’s headline inflation slowed more than expected in February, data showed on Thursday, dropping close to the central bank’s target and spurring hopes that the first in a series of rate cuts might be just around the corner.

Consumer prices in Sweden, measured with a fixed interest rate, rose 0.2% in February from the previous month and were up 2.5% from the corresponding month last year, the statistics office (SCB) said.

The central bank, the Riksbank, targets annual headline inflation of 2%.

Excluding volatile energy prices – a measure the Riksbank is monitoring particularly closely – inflation was 3.5%, compared to the same month a year earlier. That was the lowest since March 2022.

In January, headline inflation was 3.3% and excluding energy prices it stood at 4.4%.

“The broad picture… strengthens my view that we are on the way to low and stable inflation,” Riksbank First Deputy Governor Anna Breman told reporters, adding that the bank remained vigilant.

“You have to be aware of the risks of setbacks all the time. One figure is not enough to determine what we are going to do in the coming months.”

The pace of price increases has tumbled in recent months, boosting the Riksbank’s confidence that it has reined in inflation from a peak of more than 10% in late 2022, and can begin to loosen policy.

Other central banks are also expected to start cutting rates around mid-year, easing the Riksbank’s concerns about the fragile Swedish crown.

INFLATION ‘NORMALISING’

Some analysts have even suggested the Riksbank could cut at its approaching meeting at the end of the month, though markets see a first step in May or June as more likely. 0#RIBA

“The big picture is that inflation is normalising, including prices of services,” Nordea economist Torbjorn Isaksson said. “We see the first rate cut from the Riksbank in May.”

For February, the Riksbank’s forecast – from November – was for headline inflation of 2.9% and 3.7% excluding energy versus February 2023. Analysts had forecast headline inflation of 2.8% and 3.6% ex-energy.

At its most recent meeting Sweden’s central bank held its key rate unchanged at 4.00% and said it might be possible to start easing policy earlier than previously expected, possibly in the first half of the year.

However, it remains concerned about the weak crown, company pricing policies and the possible impact of geopolitical tensions on prices.

The Riksbank issues its next policy decision on March 27.