(Bloomberg) -- Sweden’s core inflation rate fell to the Riksbank’s 2% target for the first time since 2021 as the central bank is weighing its next easing move to spur domestic demand.
A measure of annual price increases that strips out energy declined to 2% last month, according to a flash estimate published Tuesday by Statistics Sweden. That’s just above the 1.9% that the Riksbank as well as economists surveyed by Bloomberg had expected.
The reading comes as investors and analysts are trying to figure out whether the Swedish central bank will step up its pace of easing by taking borrowing costs half a percentage point lower in one go, or continue with quarter-point cuts through the end of this year. As most measures in the September inflation release were in line with expectations, economists agreed that the health of the economy will be important for the next decision.
“For the time being, the inflation outlook is of less concern for the Riksbank,” Swedbank AB’s Carl Nilsson, Glenn Nielsen and Jesper Hansson said in a note. “Activity data, particularly household consumption, will likely tip the scales in favour of either 25 or 50 basis points.”
The Swedbank analysts stuck to their call for a half-point cut in November, while Svenska Handelsbanken AB’s Johan Lof remained in the camp expecting the Riksbank to continue at the current pace. If a batch of economic data due to be published Thursday turns out strong, it would strengthen the case for a quarter-point cut at the next meeting, he said, while a weak showing “would instead tilt the risk more firmly” toward a larger reduction.
What Bloomberg Economics Says...
The favorable prints and a tame inflation outlook where we see CPIF gains below the 2% target through to late 2025 are supportive of further rate cuts from the central bank. We see that taking the form of 25-bps sized steps down in both of the meetings this quarter, taking the policy rate to 2.75% by year-end.
—Selva Bahar Baziki, economist. Read more here
Even though the Riksbank started lowering its benchmark before most peers in May this year, the Swedish economy has yet to recuperate from almost three years of stagnation, and that has increased pressure on the central bank to move quicker.
Tuesday’s release marks the first time that Statistics Sweden publishes a flash estimate of inflation, without details on which product groups contributed to price increases. Doing so aligns more closely with price-data releases by peers, such as the euro area.
The agency has said that on average, the early reading should only deviate from final numbers by an average of a hundredth of a percentage point.
Figures published in the database of Statistics Sweden showed that the annual CPIF inflation rate that the Riksbank targets was at 1.15% in September, marking its fourth consecutive month below 2%.
--With assistance from Joel Rinneby.
(Adds economist comments from fourth paragraph.)
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