Sweden’s headline inflation likely closer to target level in December

Sweden’s consumer price inflation is expected to have come closer to the target level in December. CPI inflation is expected to have accelerated 0.3 percent in December. The CPIF is likely to have come in at 1.8 percent year-on-year, consistent with the Riksbank’s forecast, said Nordea Bank in a research report. The two focal points in December are food prices and international flights.

Prices of food have increased globally, while the SEK is weak. There are signs of increased prices in Sweden’s shops. For instance, the NIER’s Business Tendency Survey indicates signals of increased food prices. Thus CPI is expected to rise by around 0.1 percentage point month-on-month in December.

International travelling prices also increased at the end of 2016. But the rise was more moderate than in recent years. Energy prices have been volatile. Increased fuel prices are countered by lower electricity prices.

Given the international flights prices, and possible also due to prices of footwear and clothing, risks are skewed to the downside for the overall CPIF inflation. CPIF inflation is expected to have reached 1.8 percent in December, the highest reading since April 2011. Stripping energy, forecast for December is 1.2 percent, according to Nordea Bank.

In the first half of 2017, CPIF inflation is expected to come in between 1.5 percent and 2 percent, but without reaching 2 percent, added Nordea Bank. Weak SEK and energy are boosting inflation, while modest wage rises signifies that core inflation stays stable at relatively low levels. Stripping energy, inflation is just slightly above 1 percent.

In all, inflation close to the target would at least provide Riksbank with some breather. But the appreciation of SEK is a source of concern for the bank.