Sweden's Inflation Expected to Rise Above 2% in 2027, Prompting Riksbank to Hike Interest Rates

Sweden's economy is showing signs of recovery after a period of recession, with new forecasts indicating a rise in inflation and consequent interest rate hikes by the Riksbank. According to the National Institute of Economic Research (Konjunkturinstitutet, KI), the preliminary KPIF inflation rate reached 0.7% in July 2026, slightly higher than expected but still resulting in a forecasted inflation rate of 1.3% for the entire year 2026 — notably below the Riksbank's 2% target.

This subdued inflation has been influenced by temporary tax reductions on food, electricity, and fuel, as well as lowered prices for public transport tickets, which are expected to continue into autumn. However, underlying inflation, excluding tax changes and volatile energy prices, is projected to rise above 2% in 2027. This shift is anticipated despite the current low headline inflation.

In response, KI expects the Riksbank to proceed with a gradual tightening of monetary policy by increasing the policy interest rate by 0.25 percentage points later this year and again in 2027. These steps align with KI's June assessments and are aimed at addressing the anticipated inflationary pressures in the coming year.

Meanwhile, the Swedish economy's growth forecast has been revised upward, with GDP growth predicted to reach 2.4% in 2026 and 2.8% in 2027, signaling the end of the recession by 2027. The unemployment rate, which rose to 8.7% in the second quarter of 2026, is expected to decline gradually, reaching around 7.9% in 2027 and further nearing equilibrium levels of about 7% by 2028. KI points out that such delayed labor market improvements are typical following economic recoveries.

Additionally, Sweden's public finances appear robust, with a projected budget surplus of approximately 95 billion kronor over the 2027-2030 period.

These developments underscore a cautiously optimistic outlook for Sweden’s economy, where monetary policy will play a key role in managing inflation as growth and labor market conditions improve.