That unexpected spike in unemployment is set against an equally surprising pick-up in core inflation. CPIF excluding energy hit 3% last month, more than half a percentage point above the Riksbank’s most recent forecasts. Again though, there are mitigating factors.
Higher food prices explain some of the move. Services inflation – arguably a more relevant benchmark for monetary policy – fell. The stronger krona will act as a downward force on inflation too. And the bigger picture story is that inflation expectations are much more contained than they were a couple of years ago, which should translate into more muted wage settlements.
There are still plenty of unknowns, not least US President Donald Trump’s tariff strategy, which we expect to heat up in April. And the extent to which higher fiscal spending across Europe will feed through to higher growth this year. That aside, we think the Riksbank will be content with keeping rates where they are for the foreseeable future, particularly given our call for the European Central Bank to cut just once more this year.