Inflation and wage expectations increase - but too slow for the Riksbank

Inflation expectations have increased 0.1 - 0.2 ppts since Prospera's September survey. Also wage expectations are somewhat higher today than a quarter ago. This is good news for the Riksbank, but levels remain far too low to generate actual inflation. Thus both inflation and wage expectations increase too slowly to represent any real relief for the Riksbank. Still, five-year inflation expectations have left their lows thereby joining (?) one-year and two-year inflation expectations in their recent upward trend.

Reading the details on wage expectations, the good news is that the increase is due to increasing expectations among labour market participants. The bad news is that even if employees' organisations wage expectations (which of course are the highest in the survey) would be realized, wage increases between 2.6% (1y) and 3.0% (5y) are far from enough to generate CPI inflation at 2.0%. Historically, periods with CPIF ex energy inflation at or above 2.0% have coincided with periods where wage increases were at or above 3.5%. In conclusion.

"We Believe the Prospera survey represents good news for the Riksbank, but levels of inflation and wage expectations remain far too low", says Nordea Bank.