Swedish inflation soars in February, Riksbank under pressure

CORE inflation jumped in Sweden in February, fresh data showed on Wednesday (Mar 15), putting pressure on the central bank to hike aggressively at its next meeting in April and to keep tightening policy in the months ahead.

Headline inflation at 9.4 per cent was in line with the Riksbank’s forecast in February, figures from the Statistics Office showed. But worryingly for the central bank, underlying price pressures – stripping out volatile energy prices – jumped to 9.3 per cent year-on-year, up from 8.7 per cent in the previous month.

The Riksbank had forecast underlying inflation of 8.0 per cent.

It was the second month in a row where broad inflation delivered a nasty surprise to rate-setters and is likely to strengthen the feeling among Riksbank board members that they need to get inflation down fast.

“There is no doubt that the Riksbank will hike by at least 50 basis points in April, if not more,” Lars Kristian Feste, head of fixed income at Ohman Funds said. “If the Riksbank doesn’t get inflation under control, we think the policy rate could probably top 4 per cent this year.”

The Swedish krona strengthened sharply after the figures.

At its February meeting, the Riksbank raised the policy rate by a half percentage point to 3 per cent and said it expected to tighten by a further 25 or 50 basis points in April. It said rates would peak at around 3.33 per cent.

At the time, markets did not think that would be enough to tame inflation.

While the sudden collapse of Silicon Valley Bank and Signature Bank in recent days has tempered their view of central bank rate plans, signs that broad price pressures are still picking up in Sweden is likely to outweigh worries about the global economy in the minds of rate-setters.

SEE ALSO

Swedish housing market takes breather from worst rout in decades

Markets now see the Riksbank’s benchmark rate peaking at roughly 3.8 per cent.

Analysts in a Reuters poll forecast headline inflation of 9.2 per cent compared to a year earlier, with underlying inflation of 8.7 per cent.

The central bank targets 2 per cent CPIF inflation. REUTERS