Swedish CPIF inflation rises above expectations in July, Riksbank likely to keep repo rate on hold

Swedish CPIF inflation came above expectations in July. On a year-on-year basis, the CPIF inflation came in at 0.5 percent. Excluding energy, CPIF came in at 1.5 percent, accelerating from 1.3 percent in June. Riksbank’s projection was for 1.1 percent.

The main upward surprises were prices for car rental that continued to rise and positively contributed a full 0.18 percentage point to CPIF sequentially. Prices for car rental has lifted the CPIF by 0.34 percentage point over the last three months.

Prices for clothing and footwear were above expectations too, negatively contributing only 0.18 percentage points sequentially. This was partially balanced by package travel being lower than forecast, as prices were not imputed in July, which has been the case the previous months. There were possibly rather few package travels in July. The package travels available were at lower prices than if they had been imputed.

“All in all, inflation has been higher than expected over the summer, but overall cost pressures are nevertheless low. The SEK has strengthened and wage increases are low. Although the high July reading is good news for the Riksbank and supports our view that the Riksbank will keep the repo rate unchanged at 0.0 percent for foreseeable future, the bank is still facing major challenges as for keeping inflation and inflation expectations at the target”, said Nordea Bank in a research report.