Swedish inflation likely to have slowed in August – Nordea Bank

Swedish CPIF inflation is expected to have slowed down in August. According to a Nordea Bank research report, the CPIF inflation is likely to have dropped to 2.1 percent in the month, down from July’s 2.4 percent print and 0.1 percentage point below Riksbank’s forecast.

For four consecutive months, inflation has surprised on the upside. The discrepancy has mainly been prices for package travel. Package travel contributed around 0.3 percentage point to the CPIF month-on-month in June as well as in July, thus 0.6 percentage point in total for these two months. This is turn is to a greater degree explained by the new method for how Statistics Sweden measure prices for package travel, stated Nordea Bank.

There are reasons to believe that prices for package travel should be higher than normal, as the SEK weakness the past year should stimulate prices. However, the year-on-year figures should not be 30 percent as it was in July, it should rather be about 5 percent.

Prices for package travel is likely to have subtracted around 0.4 percentage point and a year-on-year reading at about 10 percent. The year-on-year reading is likely to edge down further in the months ahead. The forecast is uncertain as it is difficult to judge the impacts of the new method. However, if prices fall less than expected in August, then prices should come down in coming months instead.

The Riksbank’s inflation forecast is roughly consistent with the view mentioned above for the coming seven to eight months Therefore, inflation is expected to decline around the turn of the year. One of the several challenges for the central bank would be to keep the SEK weak going forward. This means that it would become difficult for the Riksbank to signal a reversion of the monetary policy for some time. The central bank is expected hike its rate in the fourth quarter of 2018, added Nordea Bank.

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