(Bloomberg) -- Sweden’s core inflation rate slowed more than expected at the end of the year, fueling expectations that the Riksbank will deliver its one planned interest-rate cut already this month.
A measure of annual price increases excluding energy declined to 2.1% in December, Statistics Sweden said on Wednesday, citing a preliminary figure. The median estimate of analysts surveyed by Bloomberg was 2.2%, the same as the Riksbank’s projection.
The data, including a decline in headline price growth, provides relief for Swedish policymakers who last month signaled their preference for a quarter-point key rate cut from the current 2.5% in the first months of the year.
“Today’s inflation outcome keeps the door well open for a rate cut at the next monetary policy meeting,” Swedbank AB’s economist Carl Nilsson said in a note to clients. “For now, we maintain our forecast of a January rate cut and await the incoming weeks’ activity and labor market data.”
The officials had said in their statement dated Dec. 19 that the key rate “may be cut once again during the first half of 2025” if the outlook matches their expectations.
What Bloomberg Economics Says...
“The downside surprise in December’s inflation figures supports our call for ongoing easing from the Riksbank Executive Board to revive the economy. We see policymakers delivering two cuts early this year — a dovish call relative to the Riksbank’s own guidance for a single cut in the first half of the year.”
— Selva Bahar Baziki, Sweden economist. Read more here.
The Swedish krona eased following the news, trading 0.2% lower at 11.5255 versus the euro at 9:00 a.m. in Stockholm.
Five reductions in borrowing costs by one of the most dovish monetary authorities in the developed world have so far failed to start a meaningful rebound from a three-year stand-still. At the same time, the rate-setters have engaged in a public dispute with Sweden’s largest food industry lobby over their remarks cautioning against aggressive pricing.
In December, the CPIF rate of inflation that the Riksbank targets was 1.5% in annual terms, marking the seventh month in a row of readings under 2%. It also trailed forecasts from both analysts and the Riksbank.
Still, “it appears that it was the right move by the Riksbank to lift its inflation forecast in December – note that today’s downside surprise was the first in six months for the Riksbank,” Svenska Handelsbanken AB’s head of forecasting, Johan Lof, said in a note. He also expects the Riksbank to cut its key rate to 2.25% at the meeting that’s due on Jan. 28, while pointing out that move “isn’t a done deal.”
--With assistance from Joel Rinneby.
(Updates with analyst comments, market reaction from first paragraph.)
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