Sweden Inflation Surprise Puts Riksbank Rates Under Scrutiny

Key Moments

Soft October Inflation Data Challenges Hawkish Stance

Nomura strategists report that Sweden’s October inflation readings, measured by CPIF and CPIF excluding energy, came in weaker than anticipated. The data raise new questions about the Riksbank’s recent policy tightening and the path of future rate decisions.

According to Nomura, the flash CPIF reading showed a notable downside surprise relative to both their own projections and official forecasts.

As the strategists note: “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%).”

Tax and Energy Dynamics Behind the Headline Figure

Nomura attributes the current low headline inflation primarily to recent shifts in Sweden’s tax and fiscal stance rather than purely cyclical disinflation.

The strategists state: “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 weaker-than-expected impact from energy prices, even after the partial reversal of fuel tax cuts, contributed to the downside surprises in both CPIF and CPIF ex-energy metrics.

Riksbank Hike Cycle Faces Increased Uncertainty

The Riksbank has recently resumed tightening, and Nomura had anticipated a gradual continuation of this process. The latest inflation data, however, may complicate that trajectory.

As Nomura highlights: “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.”

The combination of a softer inflation backdrop and recent declines in energy prices could prompt markets to reassess the likelihood and schedule of the projected rate increases.

Growth Strength and Energy History Keep Upside Risks Alive

Despite the immediate downside surprise in inflation, Nomura cautions that the risk balance for price pressures is not one-sided. The strategists point to Sweden’s recent economic performance and the legacy of elevated energy costs as potential sources of renewed inflation momentum.

They note: “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.”

With two additional inflation releases due before the Riksbank’s February policy meeting, those data are expected to be pivotal in determining whether the central bank proceeds with the next step in its projected rate-hike path.