Unexpected Drop in Swedish Inflation to 0.3% in December Challenges Riksbank's Policy

Sweden experienced a surprising decline in inflation during December 2025, with preliminary figures from Statistics Sweden (SCB) revealing the inflation rate plunged to 0.3%. This unexpected fall outpaced forecasts by the Riksbank and other analysts, contradicting earlier suspicions that temporary factors like Black Friday sales might have caused a fleeting dip.

The Riksbank’s core measure of inflation, KPIF—which excludes changes in interest rates—also fell from 2.3% to 2.1%, edging closer to the central bank’s 2% target. According to Alexandra Stråberg, chief economist at Länsförsäkringar, this is positive economic news, signaling an improving inflationary environment.

Despite this sharp decline, Riksbank Governor Erik Thedéen and his colleagues have maintained the current interest rate at 1.75%, indicating that they are cautiously monitoring economic developments before considering further rate cuts. The bank plans to assess how the economy recovers through winter and spring, emphasizing the need to justify keeping rates steady even as inflation approaches near zero.

Looking ahead, experts project persistently low inflation throughout 2026, partly driven by a planned reduction in food VAT scheduled for April. This is expected to depress both the Consumer Price Index (KPI) and KPIF below 1% for the year, posing a unique challenge for Sweden’s monetary policy.

In 2025, Swedish households benefited from substantial income growth while experiencing overall normal inflation levels, adding complexity to the inflation outlook. The rapid fall in inflation that began in November has surprised many and will require careful balancing beneath the Riksbank’s watchful eye.

This latest inflation data represents a significant shift in the Swedish economic landscape and is shaping expectations for the country’s monetary policy direction in the coming months.