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Swedish inflation decelerates in January, imported inflation likely to bounce in months ahead

Swedish CPIF inflation came in much below forecasts in January. On a year-on-year basis, the CPIF inflation slowed to 2 percent in the month, as compared with consensus expectations of 2.3 percent. Stripping energy, CPIF inflation rose to 1.4 percent year-on-year, 0.4 percentage point below Riksbank’s forecast.

Meanwhile, the consumer price inflation came in at 1.9 percent year-on-year, as compared with consensus expectations of 2.2 percent. Sequentially, inflation came in at -1, as compared with consensus expectations of -0.7 percent.

The reason for below expected figures for the month of January is that the impact of the soft SEK is not kicking in, noted Nordea Bank in a research report. This is seen in lower than expected prices for foreign travel, lower prices for clothing and footwear. Moreover, food prices fell while they were expected to rise partially because of weak SEK.

The imported inflation might bounce in the months ahead, but the very low January reading highlights that cost pressures are low and much lower than the central bank’s view, said Nordea Bank. The impact of the changed basket is -0.1 percentage point on the year-on-year figure, which was below expectations. This will pull down the year-on-year figure throughout 2019.

“Our long-held view is that the Riksbank will not see any domestic reasons to hike rates the coming years on the back of the inflation and growth outlook. Today’s inflation number reinforces that view”, added Nordea Bank.

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