Carl Johan von Seth: Inflation near zero controls the Riksbank towards a new interest rate cut

What happens to inflation?

It drops unexpectedly. The price increases in the consumer price index were 0.2 percent, calculated at an annual rate according to preliminary figures from Statistics Sweden.

The inflation rate has not been so low since the pandemic year 2020.

Good news, quite clear. During the winter we had a brief relapse in the inflation end which not least gave a push at food prices. In addition, concerns rose around Trump’s trade war. The clock squeezed for expensive times, again.

Although Thursday’s statistics are preliminary and lacks detailed figures, it reinforces the hope that has risen in the spring: that the food price increases have stopped and that inflation is over the law.

Can you trust it?

In any case, there are a great deal that indicates that inflation will be relatively low for a while to come.

Three factors weigh heavily. The first is that many of the global commodity prices have dropped lately. Another positive thing is that since the turn of the year, the krona has been strengthened, especially against the dollar, which makes many of import goods even cheaper.

A third factor is the weak international and Swedish economic situation. It has the positive side effect that the price pressure is generally lower.

Okay, isn’t it time for the Riksbank to lower the interest rate then?

Well, probably.

The Riksbank’s own target index KPIF (which thinning away households’ swinging interest costs) showed an inflation rate of 2.3 percent in May. Admittedly, that figure is slightly over the 2 per cent target and also entirely according to the Riksbank’s forecasts. But another of the important dimensions that the Riksbank is looking, KPIF excluding energy prices, has been lower than expected.

If you put it together with surprisingly weak growth figures for the Swedish economy, it indicates that the Riksbank can take the step and lower the policy rate from 2.25 to 2 percent during the summer. The next interest rate will arrive on June 18.

Read more:

Statistics Sweden: inflation rate of 0.2 percent

Experts: The Riksbank should have lowered the interest rate before