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Swedish key interest rate hike looms as inflation remains 'too high'

Becky Waterton
Becky Waterton - [email protected]
Swedish key interest rate hike looms as inflation remains 'too high'
Swedish central bank head Erik Thedéen. File photo: Fredrik Sandberg/TT

Despite inflation dropping last month, experts still believe the Riksbank central bank is likely to hike Sweden's key interest rate at its next meeting in November.


Sweden's inflation rate according to the country's Consumer Price Index (CPI) was 6.5 percent last month, down from 7.5 percent in August, new figures from Statistics Sweden show.

CPIF inflation - the consumer price index with interest rates taken out of the equation - stood at 4.0 percent in September, while CPIF-XE (CPIF inflation with energy prices removed) was 6.9 percent.

"Widespread price increases in September were offset by decreasing electricity prices," Statistics Sweden statistician Mikael Nordin wrote in a statement.

Electricity prices dropped in September and were 45.3 percent lower than during the same period last year, while prices on recreation and culture were the main driver behind September's inflation rate.

Despite the drop, inflation did not fall as much as analysts had predicted, increasing the likelihood of a further key interest rate hike at the Riksbank central bank's next meeting in November.

"Underlying inflation remains too high," Handelsbanken wrote in a statement on the inflation figures on Friday. "[September's inflation rate] is higher than expected, and a broad based surprise."

"All told, today's CPI report strengthens our forecast for a November hike by the Riksbank, to a 4.25 percent policy rate."

Swedbank holds broadly the same view as Handelsbanken, describing September's inflation figures as "too high for comfort" in its report on the Friday's figures.

"While energy prices were lower than expected, overall headline inflation was quite a bit higher than expected, driven by upside surprises from especially prices on recreation and culture, furnishing and household goods as well as food."


Its analysts also believe a 0.25 point hike in November is still likely, as CPIF inflation - the figure the Riksbank usually looks at - last month was 0.3 percentage points higher than the 3.7 percent figure the Riksbank had forecast.

The banks did not, however, entirely rule out the possibility of the Riksbank choosing not to hike the key interest rate in November.

"Admittedly, the overall cooling inflation trend keeps an unchanged policy rate in play, especially if the krona can continue appreciating," Handelsbanken's statement reads.

"The development of the SEK going forward will be crucial," wrote Swedbank.

A lot could change before the Riksbank's next interest rate announcement on November 23rd. There are a number of key dates on the horizon which should provide more insight into the state of the economy and inflation expectations of businesses in Sweden, such as the National Institute of Economic Research's quarterly survey on October 26th, followed by Statistics Sweden's next inflation report on November 14th.


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