Swedish Krona: Riksbank set to hold despite core pressure – Nomura

Nomura strategists highlight that Swedish CPIF ex-energy inflation surprised to the upside in July even as headline CPIF slowed, largely due to government fuel duty cuts and public transport subsidies. They stress that underlying inflation momentum has picked up, yet still expect the Riksbank to keep its policy rate unchanged in 2026.

Fiscal measures mask inflation momentum

"Flash CPIF inflation slowed to 0.7% y-o-y in July (Nomura & consensus: 0.7%, Riksbank: 0.5%) from 1.3% previously. However, CPIF ex-energy inflation surprised to the upside and rose to 0.6% y-o-y (Nomura & Riksbank: 0.2%, consensus: 0.3%) from 0.4% in June."

"A key reason for the slowdown in headline inflation was that the government introduced a SEK3 fuel duty reduction for both petrol and diesel between July and November, which placed further downward pressure on inflation, after other tax changes earlier this year."

"Also, in July Sweden’s government introduced a temporary 50% discount on monthly public transport passes across the country, valid until the end of the year. The Riksbank estimated it will reduce inflation by just over 0.1pp in H2."

"Looking at underlying inflation momentum, CPIF ex-energy rose 0.4% m-o-m in July, which is consistent with the July 2017-18 average (when m-o-m rises were roughly consistent with the 2% CPIF inflation target)."

"We do not expect the Riksbank to change its policy rate this year, as even after adjusting for recent tax and fiscal policy changes, inflation in Sweden is low, and despite recent optimism on economic activity (with the 1.4% q-o-q GDP growth in Q2), the unemployment rate remains high."

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