Nomura’s Global Markets Research Team highlights that Swedish inflation has undershot consensus for four months, but renewed energy price pressures from the Iran conflict could offset this. The Riksbank is expected to keep rates unchanged through 2026, focusing on second-round effects and fragile growth, with any discussion of cuts dependent on a swift conflict resolution and clearer data.
Energy risks offset soft Swedish data
“Inflation in Sweden has surprised consensus to the downside for four consecutive months. However, the economy is exposed to an energy price shock driving inflation higher, as occurred in 2022. Therefore, we believe that energy pressures may counteract recent downside inflation surprises, making no change in the policy rate this year the most likely scenario. We believe the Riksbank is likely to highlight concerns about second-round effects of higher energy prices at its 19 March meeting, but that uncertainty regarding the outlook for inflation and economic activity has increased, so a wait-and-see approach to the Middle East crisis is appropriate.”
“Beyond inflation risks, the Riksbank is likely to be concerned about the demand effects of the conflict in the Middle East. In the near term, higher uncertainty may affect business and consumer confidence to invest and spend. Sweden’s economy is in a fragile recovery after a protracted period of slow or negative GDP growth in 2022 and 2023, and monthly GDP data suggest a fall in GDP in both December and January. In particular, January’s 1.1% m-o-m decline in GDP would likely have raised market expectations of a cut if not for the conflict in Iran. If the conflict resolves quickly, we believe discussion of the possibility of a rate cut by Riksbank officials will resume, though a rate reduction is not our central forecast.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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