Sweden’s inflation expectations indicate marked rise in September

Sweden’s inflation expectations indicated a noticeable increase in September, showed Prospera’s quarterly survey. This Riksbank is likely to welcome this, said Nordea Bank in a research note. The survey includes labor market organisations, money market players and purchase managers. For the five-year horizon, inflation expectations reached 2 percent for all respondents in September, as compared with the 1.86 percent in June and 1.69 percent in September 2015.

The five-year expectations are usually understood to be quite vital for the central bank. For one year and two year horizon, inflation projections were up 0.2 percentage points to 1.3 percent and 1.6 percent respectively. The increase in inflation expectations coincides with the rise seen in CPI-inflation.

Meanwhile, quite minor changes were seen in wage expectations. Wage expectations for employers’ and employees’ organisations continued to be the same for the short term horizons; however, it rose 0.1 percentage point to 2.6 percent for the five year horizon. Wage expectations, despite the rise, continue to remain low in a historical perspective, noted Nordea Bank. For one year and two year horizon, wage expectations remained at 2.3 percent and at 2.4 percent respectively.

Overall, this is positive news for the Swedish central bank, which might see this as a sign that the monetary policy is working and that the credibility for the inflation target has bolstered. But, CPIF-inflation disappointed last month, while inflation is expected to undershoot the central bank’s projection in the future, according to Nordea Bank. Hence, it is still a challenge for the Swedish central bank to keep up inflation expectations and inflation.