Swedish CPIF inflation likely accelerated in October, Riksbank to hike repo rate by 35 bps in December

The Swedish central bank’s intentions to raise interest rates in December are being tested; however, even if the Riksbank might be disappointed with inflation, it would be difficult for the central bank to back away from its plans to hike the repo rate to zero.

CPIF inflation is expected to have accelerated to 1.5 percent in October from September’s 1.3 percent in the prior month, according to a Nordea Bank research report. Excluding energy, CPIF is likely to have come in at 1.7 percent. Along with soft economic trends and deteriorating labor market conditions this challenges the central bank’s plans to hike interest rates.

However, the Riksbank sent an unusual clear hint of a December rate hike in its October report. It will be difficult for the central bank to back away from the rate hike plans. The minutes were weaker than anticipated. The overall impression is that the central bank intends to leave behind the period with negative interest rates.

“In other words, we expect the repo rate to be hiked by 0.25 percent point to 0.00 percent in December, despite inflation being below their forecast and despite the overall unusually bad timing. We forecast the Riksbank to stay on hold at 0.00 percent for long thereafter”, said Nordea Bank.