Hjelm sees potential rate increase as inflation risks persist

Speaking at Handelsbanken in Stockholm, Deputy Governor Göran Hjelm noted that Sweden’s economic activity continues to strengthen as resource utilisation approaches normal levels.

He explained that remaining spare capacity in the labour market provides scope for further expansion without triggering excessive demand-driven inflation.

However, inflation over the past three months exceeded the Riksbank’s forecast, primarily driven by travel-related services and indirect energy price pressures.

Hjelm characterized the current policy rate stance as “slightly expansionary” and emphasized the need to proceed cautiously: “The risk of an escalation of the war, resulting in substantial price increases, justifies a probability of a rate increase over the year.”

Hjelm addressed geopolitical developments, warning that escalation risks in the Middle East have risen since June, threatening supply chains and production.

Addressing policy divergence from the euro area, he dismissed concerns over interest rate gaps with the European Central Bank.

“Differences that are justified on the basis of relative macroeconomic conditions do not typically have any dramatic effects on either exchange rates or inflation,” Hjelm said, adding that ECB decisions inform but do not dictate Swedish monetary policy.