Sweden Inflation Expectations Fall Further

(RTTNews) - Money market players' one-year expectations for inflation in Sweden fell further in February, results of a survey by Kantar Prospera showed Tuesday.

One-year CPI inflation expectations dropped to 2.1 percent from 2.4 percent. However, the 2-year expectations rose to 1.9 percent from 1.8 percent, while the longer term 5-year projection was unchanged at 2.1 percent.

Year-ahead expectations for CPIF, the measure targeted by the Riksbank, eased further to 1.9 percent from 2.0 percent. The 2-year expectation was unchanged at 1.9 percent though the 5-year projection climbed to 2.1 percent from 2.0 percent.

Official data released on Tuesday showed that Sweden's consumer price inflation increased for the first time in nearly a year in January, climbing to 5.4 percent from 4.4 percent. The CPIF inflation accelerated more than expected to 3.3 percent from 2.3 percent.

At the start of the month, the Riksbank left its key interest rate unchanged at 4.0 percent for a second straight session and suggested that a rate cut would be possible in the first half of the year, citing favorable prospects for inflation.

"The larger-than-expected increase in headline CPIF suggests optimism about disinflation may have been premature," ING forex strategist Francesco Pesole said. "Crucially, we suspect that the easing guidance offered in February can end up being counterproductive."

Avoiding a weakening of the krona remains crucial for the inflation battle, but the early easing guidance coupled with the end of forex sales places the krona in a fragile spot, Pesole added.

The policy rate is now expected to be lowered to 3.0 percent in the next 12 months, the survey showed, while the projection was 2.9 percent in the January round.

The survey is commissioned by Sveriges Riksbank and reflects money market players' expectations of Swedish inflation, GDP, policy rate, Swedish 5 year government bond rate, EUR and USD rates.

The survey was conducted from February 13-16. Survey participants' GDP growth expectations in a year improved to 0.6 percent from 0.2 percent.