Swedish Inflation Soars in February, Riksbank under Pressure

Annual headline inflation at 9.4% was in line with the Riksbank's forecast in February, figures from the Statistics Office showed. However, underlying price pressures - stripping out volatile energy prices - jumped to 9.3% year-on-year, up from 8.7% in the previous month. That was the fastest pace since July 1991.

The Riksbank had forecast underlying inflation of 8.0%.

"There is no doubt that the Riksbank will hike by at least 50 basis points in April, if not more," Lars Kristian Feste, head of fixed income at Ohman Funds, said. "If the Riksbank doesn't get inflation under control, we think the policy rate could probably top 4% this year."

The Swedish crown strengthened sharply after the figures.

Food prices were up nearly 3% in February from January, but prices were also higher for holidays, clothes, furniture and a raft of other goods and services.

Headline inflation easily outstripped the Eurozone, where the figure was 8.5%.

Part of the cause has been the weak Swedish crown, which has lost around 10% against the euro over the last year.

Concerns have also been raised about the level of competition among supermarket chains, where one - ICA - has a roughly 50% market share, according to the Swedish Competition Authority, which is looking over pricing.

"It is unacceptable if there are players who are raising prices unnecessarily," Finance Minister Elisabeth Svantesson told news agency TT, adding she had called in representatives of the three major supermarket chains for discussions.

At its February meeting, the Riksbank raised the policy rate by a half percentage point to 3% and said it expected to tighten by a further 25 or 50 basis points in April. It said rates would peak at around 3.33%.

At the time, markets did not think that would be enough to tame inflation.

The sudden collapse of Silicon Valley Bank and Signature Bank in the US in recent days has tempered their view of central bank rate plans. But February inflation looks to have trumped worries over the economy.

Swedbank expects at least a 50 basis point hike in April and another half-percentage point hike in June.

The central bank will get one more inflation reading before its next policy decision on April 26.

Markets see the Riksbank's benchmark rate peaking at roughly 4.0%, heaping more pressure on households already struggling with the cost of living crisis.

Analysts in a Reuters poll forecast headline inflation of 9.2% compared to a year earlier, with underlying inflation of 8.7%.

The central bank targets 2 percent CPIF inflation.