Sweden's Riksbank Is a Little Too Upbeat on Inflation


Sweden’s central bank is counting on a miracle.
That’s what the nation’s four biggest banks say about the Riksbank’s inflation outlook, which shows it hitting its 2 percent target for the first time in more than three years by June 2016. It even expects CPIF, a measure that factors out changes in interest rate costs, to reach that level already in January.
A fresh drop in global commodity prices since the Riksbank last put forth predictions on July 2 has SEB AB cutting its inflation forecasts and Swedbank AB making revisions to its outlook. Nordea Bank AB says that any help from a weak krona is already about to peter out.
Then there are the record low electricity prices in Sweden these days, which will only make it harder to spur inflation, according to SEB. “As a result, our CPIF forecast is even further below the Riksbank’s over the next 6-18 months,” analysts there said.

You can’t blame these economist for being skeptical -- CPIF has been below target 91 percent of the time since 2009, and 74 percent of the time since 1995, according to Nordea. It may be time for someone over there to try reading tea leaves to make predictions.
Inflation is set to be a main theme over the next few months. Swedish policy makers have unleashed unprecedented measures this year to jolt the largest Nordic economy out of disinflation, including negative rates and bond-buying.
But for the central bank to make its projections come true, it “must take significantly more measures than what is generally expected, unless it weakens its stance and accepts that inflation won’t reach 2 percent,” Nordea’s Torbjoern Isaksson said.