Sweden’s inflation slowed more than expected in March, easing pressure on the Riksbank to raise interest rates and strengthening the case for keeping borrowing costs on hold in the near term.
Core inflation dragged down by energy and food
According to a review from Danske Bank, core inflation came in below forecasts as sharp falls in electricity prices and broad-based declines in food costs more than offset price rises in other categories.
Electricity prices fell more than anticipated, while fuel costs largely matched expectations. Service prices linked to holidays also dropped, adding to the softness in core inflation.
Food prices decreased more than is typical for this time of year. Dairy products led the declines, reflecting lower global prices and the lagged effect of last year’s stronger Swedish krona. Other food categories followed the same downward path through the month.
Vat cut on food set to deepen disinflation in April
Danske Bank reiterated that April inflation data should show the full impact of the government’s temporary cut in value-added tax on food. The bank pointed to early readings from retail tracking firm Matpriskollen as backing this view.
Matpriskollen tracks standard shelf prices and does not include temporary promotions or discounts, in contrast to the methodology used by Statistics Sweden. Because the VAT cut applies directly to regular shelf prices, Danske Bank expects Matpriskollen’s data to line up closely with the official inflation figures for April.
The VAT measure is expected to generate about a 5.5% month-on-month fall in food prices in April, amplifying the disinflationary trend and weighing on headline inflation through the second quarter.
Riksbank seen under little pressure to hike
The softer March reading leaves the Riksbank with “considerable flexibility,” according to the analysis, reducing any immediate need to lift the policy rate.
The central bank kept its key rate at 1.75% at its March meeting and signaled that borrowing costs are likely to remain at that level for the foreseeable future while it monitors global developments.
The CPIF inflation rate, which excludes the direct effect of interest rate changes, was confirmed at 1.6% in March. That is below the Riksbank’s 2% target for the third month in a row, reinforcing the case for a steady policy stance rather than preemptive tightening.
Stronger krona further restrains prices
Currency moves are also helping to keep price pressures contained. The Swedish krona has appreciated 2.72% against the U.S. dollar over the past month, making imports cheaper for Swedish businesses and households.
A stronger krona typically dampens inflation by lowering the local-currency cost of imported goods, adding another restraint on domestic price growth alongside cheaper energy and food.
Markets reassess 2026 rate hike expectations
Before the latest data, financial markets had started to price in possible rate hikes later in 2026, driven mainly by concerns that higher global energy prices, linked to geopolitical tensions, would eventually push domestic inflation higher.
That narrative now sits at odds with the current data, which point to weakening price pressures at home. The contrast between global energy concerns and Sweden’s soft inflation profile is likely to shape how traders position in interest-rate-sensitive assets in the coming weeks.
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