Swedish inflation lowest since July 2021, nears Riksbank target

• Headline inflation 2.3% vs c.bank target 2.0%
• Ex-energy inflation 5.3%
• C.bank expected to start cutting rates this year
• Next policy decision on Feb.1

STOCKHOLM, Jan 15 (Reuters) – Headline inflation in Sweden dropped to its lowest level since mid-2021 in December, figures published on Monday showed, spurring hopes the central bank may shift policy and start cutting rates some time around the middle of the year.

Consumer prices in Sweden, measured with a fixed interest rate, rose 0.6% in December from the previous month and were up 2.3% from the same month the prior year, the statistics office (SCB) said on Monday.

Stripping out volatile energy prices, a measure the Riksbank is currently prioritising, inflation was 5.3%.

“We now expect the Riksbank to start cutting the policy rate in May,” Swedbank said in a note. Swedbank, which had previously forecast a cut from the current 4% in June, said the central bank would “cut three additional times this year and two next year.”

The Swedish crown eased slightly against the euro after the data.

The pace of inflation in major economies has been dropping fast and, after two years of rapid policy tightening, markets expect central banks to begin easing soon – starting with the Federal Reserve in the United States.

The Riksbank, which held its policy rate unchanged at 4.00%in November, forecasts no cut at all this year, but markets are expecting rate-setters to quickly shift their stance.

The economy has shrunk two quarters in a row – according to some the definition of a recession. Corporate bankruptcies rose 29% in 2023 from the previous year to their highest level since Sweden’s domestic financial crisis in the early 1990s, data firm UC said last week. Households and real estate firms are being squeezed by higher interest costs.

Markets see a roughly 50% chance of the first rate cut by the Riksbank by June with the policy rate ending 2024 at around 3.00%. 0#RIBA=

The Riksbank had forecast 2.1% headline inflation for the month at its most recent rate-setting meeting when it held the policy rate unchanged at 4%.

For inflation excluding energy, the Riksbank had a forecast of 5.6%.

Analysts had a forecast of 2.2% and 5.2% respectively.

In November, headline inflation was 3.6% compared to the same month a year earlier and excluding energy prices, 5.4%.

The Riksbank publishes its next policy decision on Feb. 1.