Sweden’s Producer Price Index (PPI) fell by 2% year on year in January. This compares with a 2.7% year-on-year fall in the previous reading.
We see that producer prices in January fell less than expected, with the year-over-year decline at -2% instead of a deeper -2.7%. This suggests that the strong deflationary pressures at the factory gate are beginning to fade. This is a significant sign of a potential bottoming process in producer inflation.
Producer Deflation Shows Signs Of Fading
This easing of deflation could make the Riksbank more hesitant to cut its policy rate, which currently stands at 3.75% after their last meeting in early February. We should therefore consider positioning for Swedish interest rates to remain firm in the coming weeks. Short-term interest rate futures that have priced in aggressive cuts now look vulnerable to an upward correction.
A less dovish central bank is typically supportive for the currency, so we anticipate potential strength in the Swedish Krona. The EUR/SEK pair, which has been trading in a range around 11.20, could see a move lower as rate cut expectations are unwound. Call options on the SEK could be an effective way to play this potential move against the Euro.
Looking back from our vantage point in early 2026, we remember the sharp rate hiking cycle of 2024 that was needed to curb inflation that peaked well above 9%. That recent history makes the market highly sensitive to any data suggesting inflation is not completely gone. This memory might cause a swift repricing of rate expectations based on this single PPI report.
For the OMXS30 index, the implications are mixed and could lead to an increase in volatility. While better pricing power is a positive for corporate earnings, the fear of higher-for-longer interest rates could weigh on valuations.
Equity Volatility May Increase
Given this uncertainty, we could use options like straddles to position for a spike in volatility rather than a specific direction.
