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The SEK are currently crucial for monetary policy too. At the time of the writing, the trade-weighted exchange rate is almost 2 percent stronger than assumed by the Riksbank. If the Riksbank does not act at the monetary policy meeting in October, the krona is likely to appreciate further, argues Nordea Bank. In such a scenario, the SEK appreciation will have marked consequences for the inflation outlook, something that the Riksbank will probably avoid. Therefore, the Riksbank is expected to take more action.
"Sweden Core inflation measured by CPIF excluding energy will rise to 1.7% y/y in September according to our forecast. If our forecast proves right, core inflation has risen more than 1 percentage point since early 2014 when it was lowest. A simple estimate of the exchange rate's effect on inflation suggests that the earlier weakening of the krona explains a large part of the increase in inflation", says Nordea bank.
The main drivers for the uptick in the CPI in September are prices on clothing and footwear. This is normal for the season as prices are normally hiked when the summer sales are over and the autumn and winter collections are introduced.
