SWEDEN: Bus Survey Argues For Near-term Patience; Willingness To Act Later In 26

Overall, the Riksbank’s Business Survey should argue in favour of a continued patient approach to policy tightening. There remains uncertainty around the extent to which selling prices will increase in response to higher costs, and for some companies “there is room to absorb some of the cost increases for a period of time”.

• The activity/labour market backdrop also supports this approach. The survey notes that while the war “does not seem to have significantly affected the current economic outlook….it risks posing a new challenge to the recovery” Furthermore, “companies are holding off on both recruitment and staff cuts.”.
• However, there are areas that warrant vigilance – as with other data points in recent weeks such as the Economic Tendency Indicator. There was a small increase in the expected frequency and magnitude of price changes relative to the February survey (see chart), and if the war extends into the summer companies will be less able to absorb cost increases.
• Overall, the survey could argue in favour of an upward revision to the Riksbank rate path at the end of the Executive Board’s policy horizon (i.e. in three quarter’s time). This would signal that the chances of a near-term rate hike are low while the Board continues to assess the data, while equally highlighting that the risks to inflation are slightly to the upside and the Board will be willing to act if required.
• A reminder that the current level of the policy rate at  1.75% is towards the lower end  of the Riksbank’s 1.50-3.00% nominal neutral range, so the costs of a small adjustment to 2.00% later this year could be considered low.