Swedish inflation likely to have accelerated slightly in January, may ease markedly later in 2019

The Swedish January inflation data is set to release next week. According to a Nordea Bank research report, the CPIF inflation is likely to have come in at 2.4 percent in the month, consistent with the Riksbank’s view. Inflation is expected to be high over the winter but drop noticeably later in 2019.

Usually, January is a month with sharp price cuts. Prices for clothing and footwear are usually the drivers on the downside. Nevertheless, these prices are expected to have fallen a bit less than normal for the season as the soft SEK is boosting prices. Higher imported inflation is expected to be a theme for the first half of 2019. Food prices are also expected to have risen. All indicators point in that direction, although the rise should be fairly contained going forward. Energy prices are expected to have risen too.

“We see January CPIF ex energy at 1.8 percent y/y, up from 1.5 percent in December and 0.1 percent point above the Riksbank’s call. As for headline CPIF, our forecast is in line with the central bank’s view at 2.4 percent y/y”, said Nordea Bank.

Inflation is to a large degree driven by SEK fluctuations, but the SEK has been softer than expected. Therefore, inflation is likely to be higher in the first half of this year. Assuming a stable SEK at today’s level, the impacts of the exchange rate might wane later in 2019 and inflation will ease noticeably. Food prices are slightly higher than anticipated on the back of the drought last summer. The dry summer has also added to increased electricity prices and therefore higher headline inflation.

“Notably, the Riksbank is in no hurry hiking rates despite its optimistic view on inflation and GDP growth. And as we expect the Riksbank to be disappointed on most fronts later this year, we forecast that the next rate hike is distant”, added Nordea Bank.