Sweden Sees Inflation Dip to 3-Year Low
Posted on August 1, 2024 |
On June 24, there was a noticeable drop in Sweden's underlying inflation, which would have made it possible for the Riksbank to keep cutting interest rates.
According to a statistics office statement, the core inflation rate, which does not include energy costs or the effect of interest rate fluctuations, dropped to 2.3% in June. This rate is below the central bank's prediction of 2.5% and is the lowest since December 2021.
The information validates the Riksbank's assessment that enough price pressure is abating to warrant two or three rate cuts before the year ends. It also makes it more likely that, at its upcoming meeting on August 24, the bank would lower borrowing costs.
Forecast and Economic Outlook
The Riksbank's inflation objective, the CPIF, fell to 1.3%, the lowest point in more than three years. The central bank has predicted that CPIF will stay below its 2% target this year and next, even though this decline is partially attributable to the base effects of significant price hikes in June of last year.
Svenska Handelsbanken AB's head of forecasting, Johan Lof, said inflation tendencies favor looser monetary policy in the future. The exact moment and rate of this transition are still unknown, though. The next rate decrease is expected in September, according to their current forecast. However, they plan to keep reviewing fresh information and the state of the economy in the upcoming weeks, which could result in a change in their Riksbank estimate.
This reading comes after an unexpected result in May, when hotel costs skyrocketed in Stockholm and Malmo—hosting the three stops of Taylor Swift's Eras tour and the Eurovision Song Contest, respectively. Based on statistics from June, Lof speculated that the transitory inflation effect from these events might have been more than first thought. Weekend hotel rates had decreased by over 16%.
As a result of the announcement, the Krona fell by roughly 0.2% at first, but it later recovered to trade at 11.4367 per euro as of 8:34 a.m. on July 12 in Stockholm.
The base rate of the Riksbank was first lowered in May, from 4% to 3.75%, with further easing anticipated to boost Sweden's flagging economy. As most household mortgages in the Nordic region have short-term fixed rates, the region is vulnerable to changes in interest rates.
In light of today's inflation report, Swedbank AB analysts also said they might need to reconsider their demands for policy easing. They emphasised the possibility that certain service elements might recover in the final reading before the Riksbank's August ruling.
Carl Nilsson and Glenn Nielsen of Swedbank pointed out that inflation is probably going to disappoint once more. In addition, they said that, compared to their present estimate, which calls for rate decreases in August, November, and December, risks are pointing towards more frequent and earlier rate cuts.
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