Swedish headline inflation comes in above Riksbank’s expectations in July

Swedish headline CPIF inflation came in higher than the central bank’s projection. The headline figure came in at 2.2 percent in July as anticipated by markets. Meanwhile the CPIF excluding energy came in at 1.3 percent, which is 0.1 percentage point lower than the Riksbank’s view.

The services inflation, as measured by the Riksbank, fell further. Even if there are some temporary factors at play it is bad news for the central bank, supporting that domestic cost pressures are modest and making a rate hike less likely.

July is the last inflation reading before the central bank’s September meeting. Low core inflation, as seen by the too low services inflation and inflation excluding energy, bolsters the view that the central bank will lower the rate path in its September Monetary Policy Report, noted Nordea Bank in a research report. It also is consistent with the view that the Riksbank will remain on hold throughout 2018.

There were some surprises seen in the details. Food prices rose sharply and positively contributed 0.18 percentage point to the monthly change in the CPIF, 0.1 percent more than expected. Foreign travel contributed 0.12 percentage point more than expected, while prices for clothing and footwear surprised on the downside.

Prices for public transport fell, subtracting 0.04 percentage point. Thus, for June and July, public transport has lowered the CPIF by 0.08 percentage point in total. These prices are expected to rebound in August and help up services inflation slightly, stated Nordea Bank. Prices for CDs rose in July after the sales in June, but much less than forecast, adding only 0.01 percentage point.