Riksbank Officials Shrug Off Concerns From Inflation Undershoot

Riksbank Officials Shrug Off Concerns From Inflation Undershoot
Riksbank Officials Shrug Off Concerns From Inflation Undershoot

(Bloomberg) — Riksbank officials signaled that they are not concerned about inflation in Sweden falling below its target after a string of releases showing that price increases are moderating at a faster pace than expected.

“In individual months, CPIF inflation may fall significantly below 2%,” First Deputy Governor Anna Breman said on Wednesday, citing a metric watched by the central bank. “It is not this type of individual monthly outcome that determines the direction of monetary policy, but it is always an assessment of where inflation is heading in the medium term.”

The comments, released in the minutes from the central bank’s last week’s meeting, were made before an April reading on Wednesday showed that price increases remain lower than the central bank had anticipated in March. Some economists expect inflation to fall clearly below 2% and Breman’s colleague Per Jansson even highlighted some potential benefits of such a development.

“It is obvious that the sights of monetary policy are not set on undershooting the inflation target,” he said. “But should such a situation nevertheless emerge, especially after quite some time with far too high inflation and a great sense of responsibility in wage formation, a slightly faster recovery in real wages and other real incomes could be noted as a positive side-effect. ”

At their monetary policy meeting last week, central bank officials decided to cut interest rates for the first time in eight years as recent data has strengthened their belief that price pressures are subsidizing and that inflation is approaching the bank’s 2% target. They also flagged that the initial benchmark-rate reduction, to 3.75% from 4%, could be followed by another two cuts in the second half of the year.

Read More: Riksbank Kicks Off Easing With First Rate Cut Since 2016

Nevertheless, policymakers highlighted the Swedish krona as an upside risk to prices. The development remains a concern for policymakers as the currency has weakened about 5% this year and any further deterioration could lead to higher import prices and threaten to bring inflation rates higher again.

Another jolt to prices could come from the Eurovision Song Contest and three Taylor Swift concerts in the country this month, which could lead to temporarily higher prices for services, Breman noted. More than 150,000 people are expected to attend Swift’s performances.

It’s not unheard of for concerts to swing economic statistics. Last year, Sweden’s inflation rate bounced more than estimated after services and hospitality spending when Beyoncé’s world tour stopped in Stockholm.

It was the final meeting for Martin Floden, as Anna Seim joined the executive board on May 22.

Key Comments

–With assistance from Jonas Ekblom, Christopher Jungstedt, Love Liman and Ott Ummelas.

©2024 Bloomberg LP

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