Swedish CPI seen falling in July; wage rises likely to accelerate in 2017

Sweden’s forthcoming inflation data for the month of July is expected to show that the CPI dropped 0.2 percent month-on-month, said Nordea Bank in a research report. On the other hand, the CPIF figures, which include energy, are likely to have fallen further to just over 1 percent. The Swedish krona continues to be a main factor for inflation.

Clothing and footwear’s summer sale usually happens in July and this is expected to have negatively contributed 0.3 percentage points from the CPI. Furthermore, there are signs that the clothing chains find it cheaper to buy clothes for their stores. This implies more modest price rise in the future after the high price rises recorded in the past year, according to Nordea Bank.

Meanwhile, food prices have stabilized in 2016, following a sharp rise last year. In June, the prices rose just 0.6 percent on an annual basis. Even if price rise is likely to be modest in the rest of 2016, prices are expected to have edged higher last month after June’s unexpected low reading.

Last month, prices of fuel dropped after rising for four straight months. In the meantime, electricity prices are at a high level. The risks are balanced for the July inflation forecast. The Nordea Bank’s projections for CPIF inflation are 0.2 percentage points lower than Riksbank’s estimates.

The economic growth of Sweden has decelerated and this might ease inflation pressures over time. Also, the oil price has fallen during the summer.

But the recent statistics also provides certain positive information for the central bank. Due to Swedish economy’s robust performance for several years, shortage of labor has become a main problem and this might result in upward pressure on wages, stated Nordea Bank. Trade unions in the manufacturing sector are not expected to raise their demands before 2017’s pay talks, said Nordea Bank.

However, the labor market’s tight situation might signify that the manufacturing industry would lose its benchmark status. Wages might accelerate if this happens.

“We believe that we will see accelerating wage increases next year, but they will not be high enough for inflation to stick more permanently around the 2% target,” added Nordea Bank.