Swedish CPI inflation likely accelerated 0.4 pct sequentially in September

Sweden’s CPI inflation reading for August was low. It had dropped by 0.1 percentage point on the month; however, the composition was unfavorable and different from the central bank’s perspective, noted Nordea Bank. Goods and services prices related to the domestic economy were unexpectedly low; however, clothing and footwear prices increased above forecast.

There is certain uncertainty regarding the increase in domestic inflation as wage rises are stable at historically modest levels. Thus, the prices of these goods and services would not necessarily improve. All this implies that the price rises in clothing and footwear would reverse because of trends of krona exchange rate.

International flights prices were another surprise in August. They were slightly lower than anticipated. This might be a delayed impact on the krona appreciation in 2015 and early 2016. Prices of international flights are expected to have increased in September, consistent with the pattern seen in 2015, according to Nordea Bank. Looking at other components, there might be a tad increase in fuel and food prices as well in September; however electricity prices are likely to have come in lower.

There are indications that inflation has stagnated after the rise in 2015. For instance, the CPIF excluding energy has stayed around 1.5 percent in the past year. The central bank’s different measures of underlying inflation indicate a similar trend, stated Nordea Bank.

“We expect the CPI to be up 0.4 percent point m/m in September while the CPIF reading should remain at 1.4 percent y/y. Our forecast for September and beyond is below the Riksbank’s estimates”, added Nordea Bank.

The CPIF projections for September, including or excluding energy, are 0.2 percentage points lower than the central bank. The gap versus the Riksbank’s projections would broaden in the next few months and particularly in the latter part of the forecast period, according to Nordea Bank.