Swedish ‘Massive’ Inflation Shock May Sway Dovish Riksbank

(Bloomberg) -- Swedish inflation jumped more than expected in August, backing recent speculation that the Riksbank may consider a quicker retreat from its extraordinary measures than currently anticipated.

Driven by a a continued climb in energy prices, the Riksbank’s target measure, CPIF, rose to 2.4% in August, a whole percentage point above the central bank’s forecast of 1.4%. It also beat all estimates in a Bloomberg survey of economists that had a median of 1.9%. 

The data may trigger a shift after policy makers in one of the most dovish central banks in the G-10 sphere of major currencies have shrugged off the recent acceleration in inflation as temporary. That’s as concerns are growing that the world’s largest economies face the risk of price increases becoming entrenched.

Sweden’s krona rose to a 2-month high versus the euro, advancing by as much as 0.3% to 10.1324 per euro.

Analysts were split on the implications of the surprise for the Riksbank, which has flagged it will keep its policy rate on hold at least until the third quarter of 2024. The Stockholm-based bank is due to publish a new policy report and rate decision on Sept. 21.

Coupled with the strong economy, the data “underlines that the trough for interest rates are behind us,” said Torbjorn Isaksson, an economist at Nordea Bank. Riksbank may end its extraordinary stimulus “earlier than in general anticipated.”

Swedbank economist Cathrine Danin echoed his view.

“There will be a large revision of the Riksbank forecast” she said in a note. “The risk of a lifted rate path in the long end next week has increased after this outcome.”

Still, Danske Bank’s analyst Stefan Mellin said he expects the “massive” surprise in inflation to have little bearing on the Riksbank. “They will need to see more of this before changing rhetoric,” Mellin said.

©2021 Bloomberg L.P.