Sweden: Inflation expectations edge down

Inflation expectations for all time horizons edged down in December, according to Prospera’s quarterly survey including money market players as well as labour market organisations and purchase managers.

Most important is that inflation expectations for the 5 horizons fell, to 1.8% from 1.9% in September. The longer time expectations are most important for the Riksbank as it best illustrates whether the respondents believe in the inflation target.

Looking closer to the figures, the 5Y inflation expectations fell to 1.84% from 1.86%, thus only a negligible change. It could be a psychological effect that it tips over to 1.8%, but the change from September should not affect the Riksbank. Inflation expectations are at historical lows but have been a tad lower, namely in early 1999 at 1.77%.

What could affect the Riksbank is that inflation expectations fell on all time horizons and that the trend is still downwards. Note that the survey was carried out from November 25 to December 9, thus after the unexpectedly low inflation reading for October.

All in all, inflation expectations are important for the Riksbank as it is what monetary policy is all about. With low expectations, low inflation may be self-fulfilled. On the margin, the Prospera survey increases pressures on the Riksbank to cut rates next week.

Details, Prospera, inflations expectations, December:
1 year 0.9% (1.0% September)
2 year 1.4% (1.5% September)
5 year 1.8% (1.9% September)

 

Nordea