Sweden: Inflation forecast - September flash inflation preview
Ahead of the preliminary inflation figures next week, we expect inflation to rise quite significantly. CPIF is expected to increase from 0.7% y/y to 1.6% y/y. The higher headline figure is driven by higher energy prices, but core inflation is also expected to rise across both goods and services, albeit more modestly.
IKEA recently announced that it will take steps to lower prices across Europe. Since IKEA accounts for a substantial share of furniture consumption in Sweden, this should hold back the price increases in furniture that we would otherwise expect. For example, furniture prices and other core goods are highly correlated with rubber and plastic products, which have increased significantly.
A rising concern is also the risk posed by El Niño, a periodic warming of the central and eastern Pacific Ocean that can cause droughts and floods in key agricultural regions that are important for global food production. This comes on top of already elevated energy prices and an agricultural market that is under pressure from this summer's heatwave and war-related supply disruptions. One way to measure El Niño is through anomalies in sea surface temperatures, captured by the Niño 3.4 Index shown in the chart below. A reading of +0.5°C or above indicates El Niño conditions. The current assessment points to a 90% probability of a severe El Niño and a 75% probability of the strongest El Niño on record. For Sweden and other countries in Europe, the primary impact on inflation is through the price of imported food. Food categories at risk include cacao, coffee and rice. While the weight of these specific food groups in the CPI basket is low, the concern is that El Niño adds to an already pressured situation.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
