Swedish inflation likely to have accelerated in May

Swedish headline inflation is likely to have accelerated in May. According to a Nordea Bank research report the CPIF inflation is expected to picked up to 2.1 percent year-on-year, 0.1 percentage point above the Riksbank’s forecast. The rise is due to energy prices. Underlying inflation continues to be modest. Energy prices rose sharply in recent months, stimulating inflation. The impact on CPIF year-on-year is a full 0.6 percentage point in May.

“Our call for May CPIF excluding energy is thus 1.5 percent y/y, up from 1.4 percent y/y in April but 0.1 percent point below the Riksbank’s view”, stated Nordea Bank.

Food prices are likely to have risen in May as the weak SEK is feeding through to higher prices for fruits and vegetables. Prices for foreign travel and domestic services are likely to have increased too, while other prices are expected to have stayed rather stable.

The dental reform with increased subsidies, reducing inflation, took effect from 15 April. The reform did not have any impact on April CPIF but it is likely to have an impact in May.

Oil prices have fallen in recent weeks while electricity prices have continued to stay high. Energy prices might lift CPIF by 0.8 percentage point year-on-year or more in June. June CPIF is expected to come in at 2.3 percent, but might reach 2.4 percent.

Furthermore, the subdued SEK would lift inflation in the future. Higher inflation might boost rate hike expectations. But much implies that this is not sufficient for a rate hike to be on the cares. Partially due to the underlying cost pressures are modest and energy prices are volatile, partially because of the effects of the weak SEK is mainly temporary, stated Nordea Bank.

“We see the first rate hike by the Riksbank in late 2019”, added Nordea Bank.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest