Swedish CPIF inflation falls sharply in April on energy prices, Riksbank likely to leave repo rate on hold

Sweden’s CPIF inflation dropped 0.4 percent year-on-year in April, much below the Riksbank’s forecast. The central bank projected CPIF at +0.4 percent year-on-year average in the second quarter. Excluding energy, CPIF came in at 1 percent year-on-year, as compared with the central bank’s forecast of 1.7.

Of the CPI basket, 3.1 percent was not based on actual prices. Instead, total CPI year-on-year was used for these services, such as foreign travel, cultural services and sports events, noted Nordea Bank in a research report.

Services were one of the main surprises on the downside, such as hotel accommodation, TV and music services, reflecting the low inflationary pressures. Furthermore, prices of clothing and footwear came below expectations.

Energy prices negatively contributed 0.4 percentage point sequentially and a full 1.3 percentage point year-on-year to the CPIF in April, the biggest negative effect year-on-year since the late 1980s.

“All in all, the effects of the corona epidemic that we had expected in March came in April instead. Inflation is currently difficult to interpret, but there is little doubt that price pressures are very low. We expect the Riksbank to leave the repo rate unchanged at zero, but the record-low inflation highlights risks of a rate cut”, added Nordea Bank.