The Riksbank kept its policy rate unchanged at 1.75%, in line with market expectations, but signalled that further increases are likely as economic activity strengthens and supply-side shocks persist. The central bank also noted it would accelerate the pace of tightening if inflation proves more persistent. Assuming the outlook remains broadly unchanged, rate hikes are expected to begin later this year.
Swedish inflation in August was generally in line with the Riksbank’s June projections, although the headline rate remains low, in part due to temporary fiscal measures. Underlying inflation is relatively close to the 2% target, and various indicators suggest that price pressures are still above normal and could rise further in the near term.
GDP growth in the second quarter exceeded expectations, although some of this strength reflected temporary factors. Nevertheless, the broader recovery has continued and economic sentiment has improved. The risks to inflation remain tilted to the upside, with higher oil, electricity and fuel prices, a weaker krona, and the ongoing conflict in the Middle East all contributing to intensified price pressures.
