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Swedish inflation hits 28-year high, putting pressure on Riksbank

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Sweden’s inflation rate has soared more than expected to a new 28-year high, casting doubt on how long the country’s central bank will be able to shrug off energy-fueled price hikes.

The Riksbank’s target measure, CPIF, rose to 4.1% in December, according to data released Friday by Statistics Sweden. Economists polled by Bloomberg expected a CPIF of 4% while the Riksbank’s forecast, released in November, was 2.9%.

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The data raises new questions about the position of the central bank, among the most dovish in the rich world, which expects the rate of price increases to fall below its 2% target in the second half of this year. The Riksbank currently plans to keep the size of its bond portfolio unchanged this year and leave its policy rate at zero until 2024.

Wholesale electricity prices in southern Sweden were almost five times higher in December than in the same month in 2020. In response to soaring costs, the Swedish government set aside 6 billion Swedish Krona ($672 million) to subsidize winter bills of up to 6,000 Swedish Kronor to approximately 1.8 million high-power households.

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With no clear end in sight to soaring electricity prices and lingering imbalances between supply and demand for goods, the bank may be forced to revise its dovish stance, according to Capital Economics, which reports on now expects a rate hike in November.

“A hawkish change from the Riksbank is overdue, and the official projection of just one rate hike at the end of 2024 is now pushing the boundaries of plausibility,” company economist David Oxley said in a note released Thursday. “The Council will surely have to fall on its dovish sword before long.”

Electricity prices have seen the largest monthly increase this century, according to Statistics Sweden. Excluding energy prices, the annual inflation rate in December was 1.7%, slightly lower than the 1.8% expected by economists.

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