Swedish headline inflation accelerates slightly in September

Swedish CPIF inflation came in line with the Riksbank’s forecast. On a year-on-year basis, the CPIF inflation came out at 1.3 percent in September. Excluding energy, CPIF inflation came in at 1.65 percent year-on-year, 0.03 percentage point lower than the Riksbank’s forecast. The headline consumer price index rose to 1.5 percent year-on-year in September and rose to 0.47 percent sequentially.

Services and the domestic economy were the main upside surprises. This would be welcomed by the central bank. Nevertheless, some of it is temporary. Prices for hotel rooms contributed 0.07 percentage point to the CPIF sequentially, which will possibly drop back in the months ahead. Prices for dental care rose more than expected and contributed 0.04 percentage point. The expected rise in prices for dental care came in slightly earlier than expected.

Price for imported inflation came in slightly above expectations, in spite of prices for clothing and footwear being lower than forecast. Therefore, there are some effects of the soft exchange rate as well. Overall, this is good news for the Riksbank. Nevertheless, there are still many headwinds for the bank.

“Not least is the slowdown in the economy making a further upturn in domestic inflation unlikely, which is necessary to stabilise headline inflation at the 2% target. A rate hike is highly unlikely, but September inflation reduces the probability for our call of a rate cut around the turn of the year. However, on the back of the weak economy and continued challenges to lift inflation, we keep our forecast of a rate cut”, said Nordea Bank in a research report.