Inflation continues to fall in Sweden

Sweden's central bank AKA the Riksbank continues to miss its 2% inflation target. According to Statictis of Sweden's latest preliminary CPIF figures, inflation for December 2024 fell to 1.5% compared to 1.8% for November 2024 and was not in line with both the Riksbank and market expectations. I maintain my previous view that the Riksbank must find new approaches in addition to the interest rate weapon to keep inflation on track.

The fact that inflation was lower than estimated is mainly due to energy prices falling sharply after the estimate was made, reports EFN. However, CPIF-XE landed at 2.1% and given that there are no signs that the recession has bottomed out and is about to turn around, suspicions of a further reduction in the Swedish policy rate are reinforced at the next monetary policy announcement on January 29, 2025.

The question of where the neutral interest rate, the one that has neither a cooling nor a warming effect on the economy, will be located remains to be seen. The fact that the effects of a interest cut come with a certain delay makes it more difficult, of course. All we can hope for is that the Riksbank does not hold on too tightly to its prestige and pushes Sweden into deflation instead.

AI generated image with Grok