Swedish Krona: Inflation setback questions Riksbank path – Nomura

Nomura strategists highlight a downside surprise in Sweden’s October CPIF and CPIF ex-energy inflation. They note that recent Riksbank rate hikes may now be questioned, although strong GDP growth and earlier high energy prices keep upside inflation risks alive ahead of key data before the February policy meeting.

Soft CPIF data versus hawkish guidance

"Flash CPIF inflation surprised, decreasing 0.4pp to 1.1% y-o-y in October (Nomura: 1.5%, Riksbank: 1.7%, consensus: 1.4%). CPIF ex-energy inflation also surprised to the downside and fell 0.4pp to 0.1% y-o-y, lower than our below-consensus forecast (Nomura: 0.4%, Riksbank: 0.6%, consensus: 0.5%)."

"Headline y-o-y inflation is low, largely due to recent tax and fiscal policy changes, including the temporary halving of food VAT in April. However, Sweden reversed part of its temporary fuel tax cuts on 1 October, leading to an automatic rise in petrol and diesel pump prices. Despite that, energy prices exerted less upward pressure than we expected, rising 2.3% m-o-m."

"The Riksbank raised its policy rate for the first time since 2023 yesterday. We expect two more policy rate increases – in February and May 2027. The fall in energy prices over the past day and downside surprise to inflation this morning will likely cast doubts over how many hikes will be needed, or at least their timing."

"However, upside risks to inflation remain, including from the strong economy (with robust GDP increases in Q2 and Q3) and the prolonged period of high energy prices. There are two more inflation prints before the February decision, which will be important for determining whether the Riksbank will hike at that point."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)