Upside surprise in Swedish inflation a worry for Riksbank

Upside surprise in Swedish inflation a worry for Riksbank

Eve Streeton 2023.10.23 16:05 views : 10
Headline inflation 4.0% in Sept, down from 4.7% pvs month

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Ex. energy, inflation at 6.9% vs 7.2% pvs month

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Outcomes higher than expected by Riksbank, analysts

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Strengthens case for rate hike in November

(Adds further detail, analyst comment, crown reaction)

STOCKHOLM, Oct 13 (Reuters) - Consumer prices in Sweden, measured with a fixed interest rate, rose 0.4 percent in September from the previous month and were up 4.0 percent from the same month last year, the statistics office (SCB) said on Friday.

Excluding volatile energy prices, inflation was 6.9% in September.

Price pressures have been falling fast in recent months as the effects of eight back-to-back rate hikes have slowed the economy.

But the central bank remains concerned that the pace of inflation - which peaked at over 10% - might not drop back to the 2% target quickly enough.

The Riksbank forecast headline inflation of 3.75% on an annual basis in September and 6.6%, excluding energy prices.

Analysts saw 3.8% and Info Rumah Syariah 6.8% respectively.

"We are ... sticking with our forecast for another 25bp hike in November which would bring the key policy rate to 4.25%," Capital Economics said in a note.

"That said, there will be one more inflation release before the next Riksbank meeting so the decision is far from a done deal."

Headline inflation was 4.7% in August and, excluding energy, 7.2%.

The central bank's worries have centered on continued price pressure in the services sector and the weak Swedish crown, which is fueling imported inflation. The recent rise in oil prices could also add to prices pressures.

The economy - particularly the labour market - has also been surprisingly resilient, giving the central bank some comfort that higher rates won't derail the housing market or lead to a deep downturn.

At its most recent policy meeting in September, the Riksbank left the door open to further tightening and said rates need to remain high for some time to ensure that inflation is tamed.

Markets have been pricing in a roughly 40% chance of a hike to 4.25% at the central bank's next meeting in November.

The crown strengthened slightly after the inflation figures.

The Riksbank will announce it's next policy decision on Nov. 23.

(Reporting by Simon Johnson and Sharon Singleton)

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