Riksbank takes first step in delaying rate hikes – Danske bank

Analysts at Danske Bank note that the Riksbank has cut GDP growth slightly and raised its CPIF inflation forecast by a tenth.

Key Quotes

“As the Riksbank pointed out, it has revised down core CPIF excluding energy inflation despite the SEK beings much weaker than it was assumed in its previous forecast. In essence, this probably boils down to a significant downward revision of domestic inflation (which is mostly services), while, in our view, it probably revised imported inflation up (SEK impact, see higher year-end inflation in chart). This largely resembles what we have been arguing for a long time: that last year’s rise in services inflation was the result of a high degree of 'one-offs', the effect of which is reversed this year.”

“To put it differently, wage cost driven domestic inflation is simply too low to be consistent with 2% inflation. What concerns us is that we still believe the Riksbank is too optimistic on the outlook in 2018, mainly because it sees the impact of declining residential construction coming in 2019 and not now. We believe it will have to revise that view, as construction and GDP data arrive. The Riksbank’s new repo forecast postponed the first hike until October. We believe it will have to postpone it again later this year.”