Economy For Members

Further rate hikes loom as Sweden's economy 'can't take much more'

Loukas Christodoulou
Loukas Christodoulou - [email protected]
Further rate hikes loom as Sweden's economy 'can't take much more'
Further hikes to key interest rates are bad news for Sweden's homeowners. Photo: Fredrik Sandberg/TT

Although CPI inflation fell in Sweden during January, core inflation actually rose, meaning Sweden's banks are predicting further interest rate hikes throughout 2023.


CPI inflation down by 1.1 percent in January, but core inflation up

Inflation based on the consumer price index (CPI) fell by 1.1 percent to 11.7 percent in January, according to the latest figures from Statistics Sweden, with the inflation rate excluding mortgage interest changes (CPIF) falling by 1.3 percent to 9.3 percent.

"Electricity prices fell by 27.4 percent in the last month, which also contributed to the rate of inflation falling from December to January," Sofie Öhman from Statistics Sweden, said in a statement.

But this doesn’t mean borrowers in Sweden can breathe a sigh of relief yet.


Lender Swedbank

🇸🇪 January CPIF: Setback for the Riksbank. More hikes to come. Annual CPIF declined to 9.34%, CPIF excl. energy rose to 8.75%. We now expect the Riksbank to hike 50 bp in April and 25 bp in June. Read more here:

— Swedbank Makroanalys (@SwedbankMakro) February 20, 2023 ">commented on Monday that this is a "setback for the Riksbank", Sweden’s central bank, as core inflation (CPIF excluding energy) actually rose higher than the Riksbank expected.

More key interest rate hikes possible

The Riksbank has hoped that sharp rises in the key interest rate in recent months would cool down inflation.

Faced with the opposite, a rise in core inflation, Swedbank expects the Riksbank’s board to become even more "hawkish", that is, even more supportive of raising the key interest rate further to make borrowing more expensive.

The Riksbank has a goal of keeping Sweden at just 2 percent of CPIF inflation per year, far lower than the current 9.3 percent.


Raising the key interest rate is the main way the Riksbank tries to restrain inflation by cooling down the economy and discouraging spending.

On February 9th, the bank raised the rate by half a point to 3 percent, while warning it would probably raise the rate again in the spring.

Swedbank now expects the Riksbank to hike the key inflation rate by another 0.5 percent in April and 0.25 percent in June, up from Swedbank's earlier prediction of two 0.25 percent hikes in April and June respectively.

Swedbank also predicts that the Riksbank could announce an extra key interest rate hike in March, between the normally scheduled decisions in April and June, especially if the Swedish kronor weakens further.

'Experimenting with ordinary people's budgets'

On Monday, labour union federation LO published an open letter in newspaper Arbetet decrying rate rises as "experimenting with ordinary people’s budgets".

The unions argued that since inflation in Sweden is largely caused by high energy prices triggered by the Russian attack on Ukraine, there is little point in trying to deal with it via raising interest rates in Sweden.

During the upcoming negotiations over wages in Sweden the labour unions have agreed to ask for pay rises below the rate of inflation – taking an effective pay cut – in order to avoid driving inflation even higher.

They see the Riksbank’s raising of the policy rate as a "slap in the face", since it will not only make paying off loans more expensive for LO members, but also worsen the situation for business owners by cooling down the economy.

They accuse the central bank board of being "bean counters" stuck in a "bunker".

We asked LO economist Peter Gerlach some questions about the state of Sweden's economy in our Sweden in Focus podcast this week, which you can listen to below.

'Sweden's economy can't take much more of this'

An analysis from major bank Nordea underlines LO's criticism.

Speaking to Dagens Industri on Monday, Annika Winsth, a chief economist at Nordea, warned that further interest rate hikes could mean trouble.

"I don’t think Sweden's economy can take much more of this”, she said.

Winsth agrees with the Swedbank analysis that further hikes are likely, but says that this risks hitting consumption so badly that jobs will suffer.

Following Monday's news of a rise in core inflation, the Swedish krona rose in trading, as did the price of ten-year government bonds. 

Likewise Swedbank's mortgage wing, one of the biggest lenders on the Swedish market, raised its floating interest rate by half a point, to 5.14 percent.


Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.

Please log in to leave a comment.

See Also