Swedish inflation slightly above Riksbank’s projection in November, first rate hike likely in October 2018

The Swedish headline inflation came in higher than Riksbank’s projections in November. The CPIF inflation stood at 2 percent, 0.3 percentage point higher than the central bank’s forecast. Excluding energy, inflation came in at 1.77 percent year-on-year, slightly higher than Riksbank’s projection of 1.71 percent.

Prices for clothing and footwear surprised mainly, positively contributing 0.09 percentage points. Fuel, electricity, foreign travel and home electronics also surprised to the upside, positively contributing to the headline figure.

There, the main deviation compared to the central bank’s projection is energy prices, and volatile energy prices are less significant for monetary policy. More significant than the headline figures is the composition of inflation. Domestic inflation has been above expectation in recent months, while imported inflation has been on the low side. Rising domestic inflation is something that the central bank wants to see.

“While this makes further stimuli measures (QE) unlikely, inflation will not be sufficient for the Riksbank to turn hawkish. We see the first rate hike in October 2018, with risks tilted towards an even later move”, noted Nordea Bank in a research report.

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