Sweden’s Inflation Falls More Than Expected in October, Broad Price Declines

The Swedish Central Bank's increase in the key interest rate on Wednesday, from 1.75 to 2.00 percent, was justified despite lower inflation. Further rate hikes are also needed, according to Torbjörn Isaksson.

“There is a lot to suggest that inflation will rise in the future. The krona has weakened this year and energy prices have risen. It looks like electricity prices will continue to rise here in the future. And the Swedish economy is doing well - it is strong,” he says.

The Swedish Central Bank is expected to raise interest rates

So despite CPIF inflation falling to 1.1 percent in October - compared with the Swedish Central Bank's inflation target of 2.0 percent - Isaksson expects another rate hike. But not at the December meeting; instead, he expects one next year:

“In February,” he says.

Amanda Sundström, an interest rate strategist at SEB, a major bank, emphasizes that one should not draw too big a conclusion from a single figure, even if it was surprisingly low.

“But that certainly does not mean that the Swedish Central Bank will need to tighten further in the near future.”

A rate hike may therefore take a little longer.

“And there may only be one more hike, rather than two,” she says.

Food prices were unchanged in October compared with September, in line with economists' expectations at Nordea. What was surprising was the price development of other product groups and services, according to Isaksson.

October inflation, measured by the CPIF, was 1.1 percent, compared with 1.5 percent the previous month.

Unchanged prices

The market had expected a subdued rate of price increases in October, but not such a large decline. The average forecast among analysts was for CPIF inflation of 1.4 percent in October, according to the news agency Bloomberg.

Excluding energy prices, CPIF inflation fell from 0.5 percent in September to 0.1 percent in October.

For CPIF inflation - the measure the Swedish Central Bank uses for its inflation target - Statistics Sweden has excluded the effects of mortgage interest rates on price developments.

Including interest rate developments and looking at all consumer prices in October, inflation - that is, the annual rate of price increases - was 0.9 percent. This compares with 1.1 percent in September.

Consumer prices were unchanged in October compared with September.