SWEDEN: August Flash Inflation Due Tomorrow; Key For Riksbank Sep Decision (1/2)

Swedish August flash inflation is due tomorrow at 0700BST/0800CET and will be key in determining whether the Riksbank can cut rates as early as the September 23 decision. Markets currently price the September decision as a coin toss between a 25bp cut and hold. 

• The median analyst surveyed by Bloomberg expects CPIF ex-energy inflation at 3.1% Y/Y (vs 3.2% prior), but five of the eleven forecasters expect a sub-3% reading.  The Riksbank projected 2.71% Y/Y in the June MPR, but this projection is stale given the large upside surprise seen in June.
• The range of analyst expectations is likely due to differing assumptions on the extent to which summer inflationary impulses (e.g. for package holidays and car rentals) are unwound.
• Although full details of the report will not be available until the final release on September 11, we think that annual CPIF ex-energy disinflation of 0.3pp (i.e. a 2.9% Y/Y or below rounded reading) would be sufficient to give at least three Executive Board members confidence that the summer inflation uptick is likely to be temporary.
• This may pave the way for a (potentially not unanimously supported) cut in September, and drive a material intraday market reaction in SEK FX and rates.
• A 3.0% Y/Y rounded reading would probably also be sufficient to driven some intraday reaction, but would place more importance on the final inflation report to assess underlying inflation details. On balance, it could push the likelihood of another cut into Q4 (i.e. the November or December decisions).
• Headline inflation is expected to accelerate to 3.2% Y/Y (BBG analyst range 3.0-3.5%), from 3.0% in July. This is expected to be driven by a base effect on electricity inflation.