Swedish inflation expectations eases in June, wage increases unlikely to gear up in coming years – Nordea Bank

Swedish inflation expectations dropped in June. Wage expectations came in lower as well, which will be a concern for Riksbank, noted Nordea Bank in a research report.

Prospera’s quarterly survey showed that inflation expectations came in somewhat lower in June, including money market players, labor market parties and purchase managers. Short-term expectations were down compared to the previous quarterly survey from Prospera in March.

Long term inflation expectations (5 years) came in a t 2 percent for the CPI and 1.9 percent for CPIF, marginally lower than the previous survey. The long-term time horizon is considered to be most significant. Since late 2018, there has been a downward trend in inflation expectations. Labor market parties wage expectations eased, implying pay-rises well below the Riksbank’s forecast.

Overall, the Riksbank might possibly communicate that inflation expectations are close to the 2 percent target. Nevertheless, the downward trend is a concern for the central bank.

“The new wage agreements will be signed next spring but the bargaining process has already started. The modest wage expectations support our view that wage increases, and thus inflation, will not gear up in the coming years”, added Nordea Bank.