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Fast Comment SwedenCrunching the latest wage data: preview of Riksbank monetary policy decision

  1. A lot of news to digest, but we expect the Riksbank to stay on hold at July meeting
  2. Wage data not the disappointment it was ahead of last Riksbank decision?
  3. Inflation expectations generally anchored, despite soaring among households?
A lot of news to digest, but we expect the Riksbank to stay on hold at July meeting
At its meeting on Monday (announcement Tuesday, July 3), we expect the Riksbank to decide on both keeping the repo rate at -0.50 percent as well as maintaining its expectancy for a rate hike toward the end of the year (December). There has been quite a lot of news for the Riksbank to digest ahead of this meeting, so why no policy changes? One reason is that the signals have been mixed. Inflation has been better than expected, but on the other hand the ECB's message might have been on the soft side of the Riksbank's assumption. Another reason for this meeting to be uneventful is that the Riksbank needs to consolidate its communication. Remember that the April decision caused unintended market reactions and raised questions not least in the media. For more analysis ahead of the Riksbank decision, please see our Swedish Rate Wrap and FX Pilot (http://research.handelsbanken.se/fi-fx-credits-commodities/All-publications/publication/27113/swedish-rate-wrap / http://research.handelsbanken.se/fi-fx-credits-commodities/All-publications/publication/27124/fx-pilot)
Wage data not the disappointment it was ahead of last Riksbank decision?
One recent data trend that the Riksbank will look carefully at is wages. There were disappointments ahead of the February and April meetings, but news has improved since then. Still, the so-called short-term statistics for wages and salaries are trending at 2.6 percent y-o-y for the first four months of the year. Hence the Riksbank forecast of 2.8 percent for 2018 looks a bit optimistic. But on the back of decent data readings in other wage data, the Riksbank may opt to not revise its forecast at the July meeting (see charts below).
Inflation expectations generally anchored, despite soaring among households?
Among other data news, inflation expectations stick out. In June, the Prospera survey indicated further signs that long-term inflation expectations are anchored at the two percent inflation target. But another survey shows that households' short-term expectations are accelerating fast, which is in line with upward trending energy prices and a further weakening of the krona. Sooner or later this will spread to longer-term expectations, which could appear welcomed by the Riksbank given some of its communication on the topic. For more on inflation expectations, please see our recent Macro Comment (http://research.handelsbanken.se/Macro-Research/Sweden/publication/27079/global-macro-comment)

Easter holiday affected hourly wages in March and April. "Normalisation" to about 2.7 percent in May? Still short of the Riksbank forecast for 2018, 2.8 percent.



However, decent readings in the national accounts data and April aggregate gross pay (not shown here) could convince the Riksbank to wait before perhaps revising its wage forecasts




 Survey of key economic agents indicates inflation expectations anchored at Riksbank target...



 ...but households' expectations are rising fast!



While an increasing share of housholds do not know what to expect from consumer prices 




Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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