Sweden: Oil risks temper rate-cut hopes – Nomura

Nomura analysts note that Swedish CPIF and CPIF ex-energy inflation surprised to downside for a fourth month in February, with both measures slightly below levels historically consistent with the 2% target. Goods, especially clothing, drove the miss. Looking to March, analysts highlight Oil-related inflation risks and expect the Riksbank to keep its policy rate unchanged for the rest of cycle.

Inflation surprise and Oil price risks

"Flash CPIF inflation fell to 1.7% y-o-y (Nomura: 1.8%, consensus: 1.8%, Riksbank: 1.3%), following 2.0% previously. CPIF ex-energy inflation slowed to 1.4% y-o-y (Nomura: 1.5%, consensus: 1.5%, Riksbank: 1.7%) from 1.7% in January."

"Looking at underlying inflation momentum, CPIF and CPIF ex-energy both rose 0.6% m-o-m in February."

"However, on a three-month basis, stronger-than-typical m-o-m inflation in January pulls up the average."

"Statistics Sweden has started publishing some high-level details of inflation alongside the flash release. The cause of the downside surprise relative to our forecast was goods, in particular clothing and footwear, where prices rose 2.3% m-o-m, while we had forecast a 4.5% m-o-m rise (which would have been closer to the change pre-pandemic). Household furnishings/equipment prices also surprised us to the downside."

"Looking ahead to March data, the impact of the conflict in the Middle East on energy prices will be key. Riksbank research suggests that a 10% rise in the oil price leads to CPIF inflation being about 0.2pp higher after one year than if the price had remained unchanged. However, this analysis assumes prices stay high, so if oil prices were to retreat, the inflationary impact would be more limited."

"Despite weak recent inflation prints, while Sweden’s economy remains in recovery, we believe the Bank will not cut its policy rate again this cycle, and inflationary pressures resulting from the oil price shock further reduce the probability of a policy rate cut."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)