Sweden’s Core Inflation Slowdown Supports Rate-Cut Case

Sweden’s underlying inflation rate fell more than expected in February, hitting a two-year low and confirming a trend that could open the door for interest-rate cuts in the coming months.

Sweden’s underlying inflation rate fell more than expected in February, hitting a two-year low and confirming a trend that could open the door for interest-rate cuts in the coming months.

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A closely followed measure that strips out energy costs and the effect of interest-rate changes rose 3.5% from a year ago, according to data from Statistics Sweden published Thursday. That was less than the 3.6% expected by economists surveyed by Bloomberg as well as the 3.7% that the Riksbank projected in November.

The Swedish central bank has said it could begin lowering borrowing costs in the first half of this year, and most economists expect a first cut in May or June to bring the benchmark rate to 3.75% from 4%. However, the timing remains uncertain and investors have tempered expectations for rapid easing since the beginning of the year.

That mirrors developments in the US, where Federal Reserve officials have become more cautious about rate cuts as inflation has topped forecasts in two consecutive readings. Delayed easing in the US and the euro area would also make it harder for the Riksbank to exit constrictive monetary policy as doing so risks weakening the Swedish krona and boosting prices on imported goods.

Price growth was mainly slowed by lower electricity prices that reduced housing costs, Statistics Sweden said on Thursday.

Households in the Nordic country have been squeezed by an 18-month tightening campaign that weighed on demand and caused housing construction to freeze up. Still, the economy only saw a contraction of 0.2% in 2023, and could start growing again this year, according to economist forecasts, with the median estimate of 0.1% in a Bloomberg survey. That would still be the weakest performance in the G-10 space of major currency jurisdictions, based on data compiled by Bloomberg.

An improving outlook for inflation would also give more leeway to the Swedish government to increase spending. Despite the recession, it has been cautious on outlays to avoid fueling further inflation.

With assistance from Joel Rinneby.

This article was generated from an automated news agency feed without modifications to text.