News & Analysis

April’s inflation data out of Sweden this morning marginally undershot expectations once again, adding some validation to the Riksbank’s recent decision to begin trimming rates.

Looking at headline measures, neither the CPIF or CPIF ex-energy readings are likely to be of concern for policymakers, even as the former ticked up 0.1pp and the latter flatlined from March. Both are now someway below the Bank staff forecasts, and close to target in any case. With the Executive Board having all but ruled out a June rate cut, and indicated a relatively conservative easing pace of once per quarter for the remainder of the year as a means of stymying any currency weakness, we doubt this morning’s readings do little to change that outlook. This has been reflected in market price action this morning too, with EURSEK barely moving on this morning’s softer-than-expected prints.

CPIF rose by just 0.1pp on a YoY basis to 2.3% in April, marginally below the 2.4% expected by markets and significantly undershooting the 2.7% predicted by Riksbank staff.

Core CPIF, meanwhile, flatlined on last month’s reading of 2.9% YoY, again undershooting market expectations by 0.1pp and landing someway below Riksbank forecasts of 3.3%. Moreover, the lack of disinflation in the year-on-year figures was largely a result of base effects, meaning that it should do little to undermine disinflation expectations amongst policymakers. A similar story is also true of some of the finer details in the data. Monthly electricity prices provided the largest downwards contribution to price growth in April, an outcome widely expected by analysts, meanwhile the volatile foreign travel component also surprised to the downside last month. Given this, a robust 0.5% MoM rise in services excluding foreign travel may sound a minor note of warning, hinting towards some resilience in domestic price pressures, but again this was mainly due to housing. Services excluding housing actually fell 0.1% on the month, leaving the annual rate to fall 0.8 percentage points to 3.9%. Services momentum did increase, however, but in the context of headline inflation that is broadly back to target, this is hardly likely to set off any major alarm bells just yet.

Indeed, such a point was made in the Riksbank May meeting minutes released shortly after the CPI data. These specifically deemphasised the month to month moves in price growth, instead focusing on the bigger picture for the economy.

Moreover, the minutes also confirmed guidance that the bar to cutting rates at consecutive meetings this year is very high. To this point, the reason for such guidance continues to look like worries around potential SEK weakness, confirming our initial read on last week’s decision. As a result, we doubt today’s modest undershoot is anywhere close to the levels needed to outweigh these concerns. This view seems to have been broadly shared by markets this morning too, with EURSEK being largely undisturbed by these latest Swedish developments.

EURSEK was little changed on this morning’s data, in keeping with the Riksbank’s well telegraphed policy guidance



Nick Rees, FX Market Analyst


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