MNI INTERVIEW: Signs Swedish Inflation Pressure Rising - NIER

Sweden's latest Economic Tendency survey shows that the risk of inflation pressures has risen in the wake of the Iran war, but it is too early to see whether supply disruption caused by the conflict is hitting economic output, the head of the GDP analysis division at Sweden's National Institute of Economic Research told MNI.

Expected inflation 12 months ahead rose from 6.4% to 6.8% in the survey released on April 29, said Magnus Ahl, in an interview which came ahead of the Riksbank's decision to hold rates on Thursday, when it also pointed to greater inflationary risks.

"If price plans and household inflation expectations continue upwards in the next survey in a clear way, then I would say it's something to really pay attention to. Then it's most likely more than just noise," he said.

While the Economic Tendency Survey showed no sign of any drastic slowdown so far, as a small open economy, Sweden is particularly exposed to adverse global developments that have grown more plausible in the last months, according to Ahl.

"We still regard a bad development as a risk scenario, but a slightly more likely risk scenario now,” he said. "I would say we need two or three more months of data.” (See MNI INTERVIEW: No Hike Delay If Shock Lasts-Riksbank's Thedeen)

HOUSEHOLD CONFIDENCE

The Economic Tendency Survey’s consumer confidence indicator fell from 95.2 to 91.5, though Ahl noted that the relationship between household consumption and household sentiment has become less tight.

"I think everyone still expects household consumption to be an important driver in the recovery that we are in right now. So that is a bit worrying, but it's one observation, and ... it's a tendency, but it's nothing dramatic so far. But if that turns into something more dramatic and more persistent, then I think it's reason to worry," he said.

"We've been struggling with this for a while now, that confidence seems to be more disconnected than usually with private consumption, household consumption.”

FOOD VAT CUT

April CPIF inflation came in below expectations at 0.8% on Wednesday, as value-added tax on food was halved to 6%. Ahl said that the extent to which households had anticipated the price cut, which was widely discussed in media, was unclear. 

The survey did not include questions about specific baskets of consumer goods such as groceries and food. Its results revealed a gender difference in household inflation expectations, with men having grown more pessimistic since the March data and women more optimistic.

This small difference could have reflected different buying patterns, with men buying more petrol and women more frequently purchasing groceries, he said, stressing that this was only a hypothesis, Ahl said.