Sweden Heading For Deflationary Period
Price growth activity in Sweden remains in negative territory according to the latest inflation data just published for the month of October. The Consumer Price Index (CPI) for the month is showing a -0.1% fall in prices when measured year on year, this compares to the -0.4% fall experienced in September and a market expectation for a drop of just -0.2% today. The month on month number has fallen to just 0.1% growth from the 0.2% recorded in September, market expectations were for this figure to come in at 0.0%.
Sweden’s central bank, the Rikksbank, this morning published the minutes of it’s latest monetary policy committee meeting. The action taken at this meeting resulted in Swedish interest rate being cut to zero and the minutes reflect the feeling of the committee members that no further action should be necessary in order to stimulate inflation. The Rikksbank Governor, Stefan Ingves, stated admitted that currently inflation is unexpectedly low and is likely to remain lower than initially anticipated over the next two years. Ingves however also noted that the combination of low interest rates, rising import prices and the rapid expansion of credit should stimulate enough activity to contribute to a rise in prices. The governor noted that if this turned out to be the case then there would be no need for further monetary policy measures, however no hint was given as to what course of action the Rikksbank might take if it transpired that additional easing was required.
Writing in the Financial Times today two deputy Governors of the Rikksbank have stressed that high interest rates did not cause Sweden’s inflation to fall to the current levels, rather it was a combination of domestic and international factors. It is likely to be later in 2016 by the time the Central Bank gets around to raising interest rates again, this is further out than initial expected but in line with the current low inflation levels in the Swedish economy.
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