Swedish headline inflation is likely to come in line with the Riksbank’s forecast in December; however, downside risks dominate.
“Our call for December CPIF at 2.2 percent y/y and CPIF ex energy at 1.5 percent y/y is in line with the Riksbank’s view”, noted Nordea Bank in a research report.
There are downside risks to the forecasts due to imported inflation. The impacts of the past year’s subdued SEK are likely to feed through to prices for imported goods and for some services in December. For instance, prices on clothing, footwear and foreign travel are likely to rise, partially because of the soft SEK. Nevertheless, the timing is tricky to assess and there is a risk that the impacts would come later, said Nordea Bank.
Delving into details, food prices are likely to have picked up a bit in the month after falling in the prior months. Fuel prices fell while electricity prices rose. Services inflation, which is closely monitored by the central bank, is likely to have risen in December. Nevertheless, this is partially because of the expected rise in foreign travel on the back of the subdued SEK. Excluding travel, services inflation is likely to have stayed the same.
“Looking ahead, we expect inflation to remain around the 2 percent target over the winter. But when the effects of the weak SEK fade and electricity prices fall back, we expect CPIF-inflation to decline to around 1 percent later this year”, added Nordea Bank.
The Swedish central bank is expected to hike its interest rate in December 2019 when the ECB is likely to take its first step.