Swedish inflation rises above expectations in July, Riksbank to remain dovish despite higher figures

The Swedish inflation, gauged by CPIF, came in higher than anticipated and much above the Riksbank’s forecast in July. The CPIF-inflation came in at 2.35 percent year-on-year, as compared with the central bank’s forecast at 1.8 percent. CPIF excluding energy came in at 2.1 percent year-on-year, 0.4 percentage point higher than the central bank’s view.

CPIF-inflation came out much higher than expected and far above the Riksbank’s forecast. But the bank can’t relax. Food and foreign travel were the two surprises in the month. Foreign travel contributed 0.14 percentage point more on the month than was expected.

Prices for foreign travel added 0.45 percentage points sequentially in June and 0.46 percentage point in July, therefore 0.90 percentage point in total for these two months. This is mainly seen as an impact of the new calculation method for package travel. It is likely to drop sharply in the months ahead, noted Nordea Bank in a research report. Furthermore, food prices rose more than projection, positively contributing 0.12 percentage point to the headline figure.

Inflation measured by consumer price index rose 0.53 percent sequentially, as compared with consensus expectations of 0.3 percent. On a year-on-year basis, it rose 2.2 percent year-on-year.

Overall, the high inflation figures are a welcome news for the central bank; however, the bank cannot be relaxed, stated Nordea Bank. The deviation from the Riksbank’s forecast is mainly due to temporary factors and the SEK continues to be vital. Following the release of July inflation reading, the SEK strengthened. The central bank does not want to boost any additional appreciation.

“This will keep the Riksbank dovish, despite the higher than expected inflation numbers. We see the first rate hike in H2 2018”, added Nordea Bank.

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