The market has after a series of upside surprises regarding inflation during the fall of 2024 begun to hesitate. It may not be as many and rapid interest rate cuts from the Swedish Central Bank as previously expected.
But on Wednesday came a surprise in the other direction. The KPIF inflation fell unexpectedly to 1.5 percent in December, shows fresh figures from Statistics Sweden (SCB). Down from 1.8 percent in November.
Increases the probability of a cut
The average forecast before the report was a decline to 1.7 percent, according to Bloomberg.
The core inflation (excluding energy prices) is right on target. This, together with a weak economy, strengthens the picture of the Swedish Central Bank cutting interest rates in January, says Torbjörn Isaksson, chief analyst at Nordea.
Colleague Olle Holmgren at SEB agrees.
This strengthens the picture that inflation is near the target. And it increases the probability of the Swedish Central Bank cutting interest rates in January as well.
Mattias Persson, chief economist at Swedbank, is on the same track.
The Swedish Central Bank can continue to cut interest rates in January as well. This also bodes for the possibility of more cuts ahead, he says.
There is reason to be more aggressive than what the Swedish Central Bank has shown, he adds.
The KPIF measure, where the effects of mortgage rates are excluded, is what the Swedish Central Bank has as a benchmark for the inflation target of 2 percent. But since energy prices are volatile – not least during the winter – much focus is on core inflation, where energy prices have also been excluded.
Core inflation in December fell to 2.1 percent, down from 2.4 percent in November.
Expecting two more cuts
If you include all consumer prices and look at KPI inflation, it halved to 0.8 percent, down from 1.6 percent.
The Swedish Central Bank cut the interest rate five times last year, from 4.00 to 2.50 percent, and has in its interest rate path flagged that it may be a cut to 0.25 percent to 2.25 percent in the beginning of 2025.
In the pricing on the interest rate market, the probability of an interest rate cut in January increased to 72 percent after the unexpectedly weak December figures. On Tuesday, the probability was 60 percent.
SEB and Nordea expect two more cuts this year, down to 2.00 percent in interest rates. This despite core inflation trending slightly above the inflation target. Among other things, it's about the unexpectedly slow recovery and weak development for Swedish consumption.
