Sweden is currently in an inflation bubble, with significantly lower price increases and interest rates than the rest of the world, according to Nordea chief analyst Torbjörn Isaksson.
The key question is how interest rate increases abroad affect Sweden, he says.
When other central banks raise their policy rates while the Swedish Central Bank (Sweden’s central bank) waits, it puts pressure on the krona’s exchange rate. This makes imports more expensive in Swedish kronor, driving inflation.
We don’t see much of that effect yet, but it will come - especially next year, says Isaksson.
More people choose fixed rates
More and more people are taking note of rising interest rates. The proportion of mortgage borrowers choosing fixed interest rates to avoid unaffordable interest costs has increased.
On Wednesday morning, Statistics Sweden will release new figures for September. Analysts expect CPIF inflation to more than double to 1.5 percent in September, up from 0.7 percent in August.
But the usual inflation figures are artificially low because of temporary support measures. Halving food VAT, temporarily lowering fuel taxes and halving public transport ticket prices reduced inflation by around 1.6 percentage points in August.
Inflation peak expected
Adjusted for the temporary support measures, CPIF inflation in August was 2.1 percent, according to Statistics Sweden. This measure could approach 3.0 percent in September. However, if energy prices are excluded, inflation is expected to remain below 2.0 percent in September.
Nordea’s forecast is that CPIF inflation excluding energy will peak at around 3.0 percent at the end of 2027 - but the risk of it being higher is greater than the risk of it being lower.
The Swedish Central Bank’s target is 2.0 percent CPIF inflation. To ease inflationary pressure in the economy, the Swedish Central Bank can try to curb demand by raising interest rates.
Something drastic will have to happen for the Swedish Central Bank not to raise the interest rate in November, says Isaksson.
In the fixed-income market, the probability of five policy rate increases - from 1.75 to 3.00 percent - in 2027 is almost 100 percent. The Swedish Central Bank’s own forecast points to two or three increases.
Nordea’s economists’ base-case scenario is that the Swedish Central Bank will be content with two increases in the policy rate - from 1.75 to 2.25 percent. The first is expected in November this year, the second in February 2027.
Variable mortgage rates normally rise and fall in line with the policy rate. If the interest rate on a mortgage of two million kronor (about $190,000) were to rise by 1.25 percentage points, the borrower’s interest costs would increase by 25,000 kronor (about $2,400) a year, or almost 2,100 kronor (about $200) a month, excluding the effect of the tax deduction.
