Defying rate hikes, Swedish inflation spikes to 12%

STOCKHOLM: Swedish inflation defied the central bank’s mitigating rate hikes, unexpectedly spiking to 12 percent in February, official statistics showed Wednesday, fuelling expectations of a contracting economy.

Facing a drop in the value of its currency, the krona, the Nordic country is now experiencing one of the highest inflation rates in Europe, and the highest outside of Eastern Europe.

After being inflated by energy prices in the autumn, the hike in prices is now being driven by food costs, which are rising at a level not seen since the 1950s, according to Statistics Sweden (SCB).

Inflation peaked in December at 12.3 percent — a more than 30-year high — then slowed down slightly in January to 11.7 percent.

Economists expected inflation to remain at January levels, but not to accelerate.

In the euro area, inflation slowed in February for the fourth consecutive month to 8.5 percent.

Trying to rein in inflation, the Riksbank — Sweden’s central bank — has repeatedly hiked its guiding rate.

The key rate has increased from zero in April last year to 3.0 percent, with another hike of 0.25 percentage points expected next month and potentially another in June.

For 2023 as a whole, the central bank expects the Swedish economy to contract 1.1 percent, unadjusted inflation of 8.6 percent and rising unemployment, according to its latest forecast in February.

In the European Commission’s latest forecast, Sweden is the only EU country expected to see its economy contract this year.