If we exclude energy prices and look at the underlying CPI inflation, the market thinks that the inflation level will stay on the same level as in January – 2.7 per cent.
The outcome will be revealed in the form of preliminary calculations from Statistics Sweden which are sent out on Thursday morning.
– The electricity situation isn’t actually that bad. The price periods on the electricity markets are pointing fairly steeply downwards in March and up until June the electricity prices are supposed to fall by 80 per cent according to the market pricing, says Olle Holmgren, head strategist at SEB.
Cold weather means more expensive electricity
The electricity price hike in February is connected to cold weather in the first half of the month and the energy prices in Europe rising at the beginning of the year.
Food prices is another component that keeps inflation up. It currently looks like, according to producer prices and the measurements of the National Institute of Economic Research, inflation will rise by perhaps four per cent in 2025 compared to about three per cent last year, according to Holmgren.
The Riksbank's inflation goal is at two per cent. However the market is counting on, despite the inflation now clearly being above this level, the Governor of the Bank of Sweden Erik Thedéen and his executive board treating us to another reduction in the interest rate this year – down by 0.25 percentage points to 2.00 per cent some time between May and August.
Believes in interest rate reduction
Holmgren believes in a reduction in May.
– It's a little unsure whether it will come at all. But we still think that this rise in inflation looks like it will be temporary and there is some uncertainty about the recovery of the Swedish economy.
Another factor is that the probability of more reductions of the central rate in the Euro zone and the USA is rather large.
A reduction of the Riksbank central rate – which among other things usually pushes down the interest rate on mortgages with variable interest rate – increases domestic demand and thereby stimulates a higher inflation pressure in the economy.