Inflation in the wrong direction – paving the way for a new interest rate hike

The forecasts for next week’s inflation report for October from Statistics Sweden (SCB) are currently pointing in the wrong direction. At least for Riksbank Governor Erik Thedéen – or if you are one of all interest-sensitive households or companies that are currently having difficulty making ends meet in the inflation and interest rate shock.

Motive for raising

Handelsbanken’s economists expect that CPIF inflation – i.e. consumer price increases at an annual rate without the effects of mortgage interest – rose to 4.4 percent in October, up from 4.0 percent in September. The distance to the Riksbank’s inflation target of 2 percent in CPIF inflation is thus increasing again after a streak of seven months in a row with reduced inflationary pressure.

CPI inflation – where the effects of mortgage rates are also factored in – is also assumed to have turned upwards according to Handelsbanken – from 6.5 to 6.7 percent.

This is a greater increase in inflation than what the Riksbank had anticipated in its latest forecasts, note Handelsbanken’s economists. They describe this as a motive for yet another interest rate hike. A ninth in 18 months.

Nordea’s chief analyst Torbjörn Isaksson shares the picture that the October figures from Statistics Norway are a notch in the curve on the downward path for inflation. His forecast is for CPIF inflation of 4.3 percent and CPI inflation of 6.6 percent.

Plan for price increases

However, he believes that the long-term downward trend in inflation will hold – even if a lingering service inflation and the vulnerable krona could cause it in the short term. But he, like his colleagues at Handelsbanken, expects another interest rate increase from the Riksbank, even if he doesn’t really think it’s necessary.

– I do not think that the Riksbank should raise the interest rate. But when we interpret the development and look at how the Riksbank reasons, we still believe that the probability is tipping over that there will be an interest rate increase, he says.

According to Handelsbanken, it is not a matter of a new energy price shock – despite some upward pressure on global energy prices following the terrorist-labeled Palestinian organization Hamas’s attack on Israel on 7 October. Instead, Handelsbanken’s economists see the culprit in the Swedish inflation drama – where the weak krona plays an important role, not least on food prices – at home.

They refer to indicators from the Norwegian Economic Institute (KI), which show that many companies – not least in the service sector – are planning for further price increases. And they think that most things indicate that the companies can also get through the increases without it affecting demand among customers in terms of consumption and investment.