Monetary Policy Report, June 2023

Inflation is falling but is still far too high. This affects households with small margins in particular, but has a negative impact on the whole economy. To ensure that inflation continues downwards and stabilises around the target within a reasonable period of time, monetary policy needs to be tightened further. The Executive Board has therefore decided to raise the policy rate by 0.25 percentage points to 3.75 per cent. The Executive Board has also decided to increase the pace of the sales of government bonds from SEK 3.5 to 5 billion per month.

In Sweden, CPIF inflation continued to fall in April and May, to a level somewhat below the Riksbank’s most recent forecast. One important explanation for this development is the surprisingly large falls in energy and food prices. However, stripped of energy prices, inflation is declining more slowly and is marginally higher than expected. This is mainly because service prices are increasing faster than expected, which could reflect continued high demand pressures in parts of the Swedish economy. The weak krona also contributes to keeping inflation up, and there is a risk that the pass-through of the Krona to price increases is greater in the current high-inflation situation.

Demand in the Swedish economy needs to dampen to enable inflation to fall back towards the target within a reasonable period of time. The policy rate is now at a level that is contractionary, which contributes to the expectation that GDP will fall somewhat going forward, at the same time as the labour market cools. CPIF inflation is expected to fall and to be close to the target in 2024.

The forecast is that the policy rate will be raised at least one more time this year and after that will remain at a contractionary level for a relatively long period of time. However, there is still considerable uncertainty, and new information and how it is assessed to affect the economic outlook and inflation prospects will be decisive in determining the design of monetary policy.