Sweden’s inflation rate turn positive in February

Sweden's headline inflation rate turned positive in February for the first time in eight months. But deflationary pressures have not disappeared altogether and we continue to think that the Riksbank will need to take additional action in April.

The headline annual inflation rate rose from -0.2% in January to +0.1%, above the consensus forecast of 0.0% and the Riksbank's expectation of -0.1%. Lower interest expenses and fuel prices were offset by higher prices for restaurants and accommodation, food and non-alcoholic drinks and increased rents.

Underlying inflation also rose a touch in February. February's data certainly reduce the chances of the Riksbank easing monetary policy further before its next scheduled meeting at the end of April. 

Inflation is well below the Riksbank's target. Furthermore, there is little evidence that the Riksbank's decision to cut the repo rate below zero and buy small amounts of government bonds has boosted inflation expectations. 

Capital Economics notes in a report on Wednesday:

• The Swedish krona has recently appreciated against the euro and is now at its strongest since mid October. 
  
  
• The strength of the krona has been an important downward influence on inflation in the past and we expect the krona to continue to rise against the euro given the ECB's more aggressive bond buying programme.
  
  
• Overall, today's data do not reduce the need for further measures from the Riksbank, notably repo rate cuts and more bond purchases, possibly before the end of April.