Swedish CPIF inflation likely to have eased in June, Riksbank likely to stand pat in 2019-2020

Swedish CPIF inflation is likely to have eased in June. According to a Nordea Bank research report, the CPIF inflation is expected to have slowed down to 1.7 percent from May’s 2.1 percent, 0.1 percentage point higher than the central bank’s view. Excluding energy, CPIF inflation is likely to have come in at 1.9 percent.

Sequentially, foreign travel is likely to been the main driver on the upside, positively contributing 0.5 percentage points to CPIF. This is partially balance by price cuts on clothing and footwear. The price movements on foreign travels and for clothing and footwear are mainly seasonal.

Energy prices have fallen. They might negatively contributed 0.3 percentage points to the CPIF rate on a sequential basis in June. Besides the fall in prices for fuel and electricity, prices for district heating also dropped in June. This signifies that energy is not stimulating the year-on-year figure anymore, noted Nordea Bank. The effect appears to be slightly negative at -0.1 percentage point year-on-year for June.

CPIF inflation had peaked in May, and June is the beginning of a downward trend to about 1 percent this autumn, said Nordea Bank. Although the effect has been less than anticipated, the soft SEK is however stimulating inflation. It is expected to continue to do so in the second half of 2019 but to a lesser extent than currently.

Furthermore, food inflation is likely to ease and domestic inflation is likely to continue to be around 2 percent. This means that CPIF and CPIF excluding energy will stabilize around 1.5 percent year-on-year rather than the 2 percent that the Riksbank has in its forecast.

“Too low inflation, sluggish GDP growth, a deteriorating labour market and easing from Fed and the ECB make rate hikes unlikely. We expect the Riksbank to stay on hold this year as well as the next year, and there will probably be speculations whether the Riksbank will launch easing measures later this year”, added Nordea Bank.