STOCKHOLM (Reuters) – Inflation in Sweden slowed sharply in March, data from the statistics office showed on Friday, nearing the central bank’s 2% target and clearing the way for the start of a series of rate cuts, possibly as early as the next policy meeting in May.
Consumer prices in Sweden, measured with a fixed interest rate, rose 0.1 percent in March from the previous month and were up 2.2 percent from the same month last year, the lowest level since July of 2021.
Excluding volatile energy prices, inflation was 2.9% year-on-year. The measures were well below forecasts by both the Riksbank and analysts polled by Reuters.
“The chance of a cut in May by the Riksbank has increased significantly,” Lars Kristian Feste, Head of Fixed Income at Ohman Funds said.
At its most recent meeting, the Riksbank kept its key interest rate unchanged at 4.00%, but said that if inflation continued to slow there was a strong chance it could start cutting rates in May.
Growth in many parts of the economy has ground to a halt, unemployment is rising and many households are struggling with higher mortgage payments after eight rate hikes in two years.
However, rate-setters are still concerned about a weak Swedish crown which could take further punishment if rate cuts by European Central Bank and the U.S. Federal Reserve are pushed back.
Data on Wednesday showed U.S. inflation consumer prices were stickier than expected and sent the Swedish crown tumbling.
The Riksbank had forecast headline inflation at 2.7% on an annual basis. Excluding volatile energy prices, the measure the Riksbank is currently focusing most on, inflation was seen at 3.3%.
Economists in a Reuters poll forecast 2.6% and 3.2%, respectively. In February, headline inflation was 2.5% and excluding energy, inflation was 3.5%.
The Riksbank has a forecast for three rate cuts this year with a roughly 50/50 chance of the first being in either May or June.
The Riksbank announces its next policy decision on May 8.
