Swedish inflation expectations dropped in December on all time horizons, according to Prospera’s quarterly survey, including money market players, labor market parties as well as purchase managers. Especially the drop in longer time horizons will be noticed by the central bank. Labor market parties’ inflation expectations, which are closely watched by the Riksbank, declined too.
Wage expectations rose slightly on the two-year horizon to 2.3 percent from 2.2 percent in September. Nevertheless, wage expectations are still low and point to clear downside risks to the Riksbank forecast. Money market players inflation expectations, which are measured every month, rose from November.
The central bank can also take some comfort in that markets’ inflation expectations, as measured by the 5Y5Y break-even, have risen slightly lately, noted Nordea Bank in a research report.
“All in all, doubts are starting to spread regarding the 2 percent inflation target. The level of inflation expectations is not too bad yet, but the trend is indeed a concern for the Riksbank. However, it is probably not bad enough from stopping the Riksbank from hiking rates later this month”, added Nordea Bank.
