August rate cut may be off the table with Sweden’s inflation surge to 2.9%

Sweden’s inflation rate climbed to 2.9%, past analyst expectations, leading many to doubt whether the central bank will move forward with its anticipated August rate cut.

In May, the country’s CPIF was 2.3%; thus, many analysts’ forecasts ranged between 2.4% and 2.5% for June. The country’s central bank had particularly hoped for 2.4%. However, the current 2.9% has stirred uncertainty in an already struggling economy.

Traders’ expectations are down to a 7-basis-point rate cut in August

Governor Erik Thedéen and four other policymakers are scheduled to convene on August 19 to deliberate on monetary policy and potential rate cuts.

In their last meeting on June 18, they slashed interest rates by 25 basis points and hinted at another round of rate cuts this year to stimulate economic growth. Still, the central bank asserted that it’s on the lookout for any persistent deviation above its 2% CPIF inflation benchmark.

Traders are expecting a 7-basis-point rate cut in August, slightly down from 8 basis points on Friday. However, some believe Riksbank could cut rates by 17 basis points in September.

Meanwhile, analysts have voiced their concerns over the rise in inflation, starting with Svenska Handelsbanken analyst Johan Lof. Lof termed the CPIF rise a “major upside surprise,” noting it stirs uncertainty ahead of the Riksbank’s August meeting.

In an X post, SEB analyst Johan Javeus also stated that the surge in inflation diminishes the likelihood of interest rate cuts soon, asking those hoping for an August reduction to rethink.

Financial Services Group Nordea also remarked, “Our forecast is that the Riksbank will stay on hold at 2.00%, and today’s inflation reading supports that view.”

Eurozone inflation stands at 2%, according to Eurostat

Sweden is just one of the many European countries whose economic growth slowed this year. However, the country’s central bank, Riksbank, strongly believed that the inflationary pressures would ease.

Market conditions remain uncertain, especially with US President Donald Trump’s tariff policies, volatile currency, and deteriorating Middle Eastern security picture. The country’s consumer confidence indicator and the purchasing manager index for manufacturing have also dropped.

According to Eurostat, eurozone inflation increased to 2%; however, it’s still in line with the European Central Bank’s target. Germany’s annual inflation rate unexpectedly eased to 2% in June, while France and Spain saw a rise in their rates.

However, given that Europe is still within the limits of its target, the central bank is widely expected to keep its key deposit rate steady at 2% at its late July meeting before potentially delivering a final 25-basis-point cut in September.

The ECB’s Chief Economist, Philip Lane, said the central bank believes the phase of reducing inflation—from its peak of 10% to 2%—has concluded. However, he added that policymakers must remain prepared to respond to any future deviations that could alter the medium-term outlook.

Still, analysts warned countries that external factors could interfere with their disinflation path, particularly with recent swings in oil prices and Trump’s tariffs.

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