Inflation pressures limited apart from in Sweden

The latest inflation data for June suggest that underlying price pressures remain subdued in Switzerland and Norway, but continue to build in Sweden. In Switzerland, core inflation, which excludes fresh and seasonal products as well as energy and fuels, was unchanged at just 0.2%. And in Norway, the Norges Bank’s preferred measure of inflation, CPI-ATE (which excludes energy prices and the direct effect of tax changes), was also unchanged, at 1.6%. In both of these countries, despite a pick-up in economic activity, domestically-generated inflationary pressure is fairly weak. As such, we expect the Swiss National Bank and the Norges Bank to leave interest rates on hold for a long time. By contrast, Swedish underlying inflation (which excludes both interest rate effects and energy) rose in June, from 1.6% to 1.9%, close to the Riksbank’s 2% target. With resource utilisation already high, inflation pressures should build further. As such, we expect the Riksbank to end its asset purchase programme in December and then raise interest rates in April 2018.