SWEDEN: 1- and 2-year Inflation Expectations Fall Below 2% Target

Swedish inflation expectations fell below the 2% target at 1- and 2-year horizons, while medium-term expectations remain well-anchored at 2.0%. This is supportive of the Riksbank cutting by 25bps at each of its remaining meetings this year, though the fall in near-term expectations could signal scope for a deeper cutting cycle in 2025 than currently envisaged.

• The September survey interviewed social partners and purchasing managers alongside the regular money market players.
• 1-year ahead CPIF expectations were 1.7% Y/Y (vs 2.0% in the June survey), while 2-year ahead expectations fell to 1.8% Y/Y from 2.0%. Finally, 5-year ahead expectations were steady at 2.0% Y/Y.
• Participants expected the policy rate to be 2.2% in 5-years’ time (vs 2.4% in the June survey). Note that this is above Governor Thedéen’s “best guess” of the neutral interest rate, which is “around 2.50%”.
• Meanwhile, money market player’s policy rate expectations in 12- and 24-months’ time were revised to 2.1% (vs 2.5% in August survey) and 2.0% (vs 2.3% in August survey) respectively, following the Riksbank’s dovish guidance tilt last month.