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Expert: Door closed for an imminent interest rate cut

Alexandra Stråberg, Chief Economist at Länsförsäkringar and Johan Löf, Head of Forecasting at Handelsbanken. Photo: Tomas Oneborg, Stina Stjernkvist
Inflation in July was 3.0 percent, according to the CPIF measure. A lower figure than analysts had expected – but significantly higher than the target. “A cold shower for the Riksbank,” says Länsförsäkringar’s chief economist.
Ivana Vujic
Published10:46
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Inflation rose – as expected – in July.
Preliminary figures from Statistics Sweden show that the inflation rate, according to the CPIF measure, which does not take into account changes in interest rates, landed at 3.0 percent. This was slightly lower than most analysts had expected, but still an increase compared to May and June, when inflation was 2.4 and 2.8 percent, respectively – and significantly higher than the Riksbank's target of 2 percent inflation.
“You could probably describe this as a cold shower for the Riksbank and for many Swedish households,” says Alexandra Stråberg, chief economist at Länsförsäkringar.
Macro analysts had, on average, expected an inflation rate of 3.1 percent in July. It is certainly positive that price increases appear to have been lower than that – but anyone who was hoping for lower mortgage rates in August would do well to lower their expectations, says Alexandra Stråberg.
– I think the door is closed for an interest rate cut in the near future. The Riksbank has now received two inflation figures that are not close to the target. There may be seasonal aspects that are messing with it, but the Riksbank will probably need to ensure that this is not the beginning of a trend and therefore interest rate cuts will be delayed.
Weak economy justifies interest rate cut
Johan Löf, head of forecasting at Handelsbanken, is also not happy about the fact that inflation appears to have been somewhat lower than the latest forecasts.
– The inflation rate during the summer has still been significantly higher than what everyone, including the Riksbank, thought it would be this spring, he says.
Before the summer, the Riksbank predicted that inflation would be 2.5 percent in July, which is significantly lower than what it now appears to have reached.
Despite the summer's high inflation figures, Johan Löf has not completely given up the idea of a new interest rate cut as early as August.
– We must not forget that the economy as a whole has developed much worse during the year than everyone had hoped it would. Inflation has been hot, but the economy as a whole has been icy cold. This guarantees lower inflationary pressure going forward.
– The Riksbank has already communicated that if we do not get the economy moving again, we risk ending up in a situation where inflation is too low again. This strongly suggests that they will lower the interest rate again to support the economy and get inflation to land around the target.
Depended on travel and rental cars
Johan Löf also points out that the Riksbank probably feels confident that inflation will fall during the autumn, since at least June's high inflation was due to higher prices for, among other things, travel and rental cars.
– These were temporary price increases. I don't think the Riksbank is particularly worried that they missed the forecast in June and that the July figure is also high. Our forecasts indicate that the interest rate will start moving towards the 2 percent mark after the summer.
– Then it remains to be seen whether the Riksbank Executive Board feels that they can take action as early as August, or if they want to wait a month or so, says Johan Löf.
Thursday's inflation figures are preliminary. Definitive figures and more detailed information on exactly what drove price developments in July will be published on August 14.
