Headline disinflation masks emerging second-round effects in Sweden
Swedish inflation fell sharply in July, but the headline figures give a misleadingly benign signal.
CPIF inflation dropped from 1.3% to 0.7% YoY, while CPI eased from 0.7% to 0.2%. Beneath the surface, however, CPIF excluding energy rose from 0.4% to 0.6%, double the 0.3% consensus forecast.
The underlying measure also increased 0.4% MoM against expectations for just 0.1%, suggesting that broader price pressures are strengthening even as the direct energy impulse fades.
This divergence is consistent with the early stages of second-round effects. Granted, for now, lower energy prices are mechanically depressing headline inflation. But earlier increases in transport, production and imported input costs appear to be feeding into prices elsewhere in the economy with a lag.
While one release cannot prove that the increase stems entirely from the Iran-related energy shock, two consecutive strong monthly increases in CPIF excluding energy (0.6% in June, and 0.4% in July) show that underlying momentum is materially stronger than the headline suggests.
This latest Swedish release may also offer an early signal for Norway and the eurozone. Similar energy, freight and supply-chain shocks affected all three economies, although the speed and scale of pass-through will differ. Norway’s upcoming CPI-ATE reading is the next regional test: an upside surprise would strengthen the case that indirect energy effects are becoming visible more broadly across Scandinavia. For the ECB, falling energy inflation does not necessarily mean that price pressures have disappeared, placing greater weight on services, wages and non-energy industrial goods in forthcoming releases.
For the Riksbank, the July data does not yet necessitate immediate hiking.
CPIF excluding energy remains well below the 2% inflation target, and policymakers will require evidence that the increase is persistent and broad-based. Even so, the upside surprise reduces the scope for a dovish shift and keeps the risk of a later hike alive. That should prove modestly supportive for SEK, with EURSEK likely to remain biased towards the lower end of its recent range.