In remarks at Swedbank, Riksbank First Deputy Governor Aino Bunge said further policy rate increases were likely over the coming year, provided the outlook for inflation and economic activity holds. Reviewing the Executive Board’s decision to raise the rate to 2%, she advocated gradual adjustments that account for households’ sensitivity to interest rates and allow each step to be evaluated.
A broad economic recovery, geopolitical tensions, energy market disruptions and the krona’s weakness underpin expectations that inflation will exceed the 2% target in 2027. Both inflation measured by the consumer price index with a fixed interest rate and underlying inflation are forecast to rise above target. Producer prices have increased sharply, while companies’ pricing plans remain elevated. Strong demand could increase the risk of higher inflation and changes in pricing behaviour, whereas weaker household demand would constrain companies’ ability to raise prices.
October’s inflation reading was below the Riksbank’s forecast, but its details still require analysis. Ahead of the December policy decision, the assessment will weigh inflation risks against the possibility that raising rates too quickly could test the recovery, with the aim of returning inflation to target at the lowest possible cost to the real economy.