Inflation outturns weak

The latest inflation data in the Nordic countries and Switzerland have generally been quite weak. Indeed, inflation in Switzerland slowed to a five-month low of 0.6% in February. The core rate was unchanged from the previous month at 0.5%, while the rate for domestically-produced goods and services was just 0.3%. All this suggests that the economic recovery is doing little to boost underlying price pressures. What’s more, exchange rate effects look set to push imported inflation down this year. As a result, the Swiss National Bank is a very long way from tightening monetary policy. Meanwhile, inflation in Sweden has been weaker than expected so far this year. The Riksbank’s target measure, CPIF, fell from 2.0% in December to 1.7% in January and was unchanged in February. But January’s decline largely reflected the effect of changes to the weights in the CPIF basket. Price pressures are clearly building, and we expect the Riksbank to respond by raising interest rates before the end of the year. Elsewhere, inflation in Norway at the start of this year was softer than the central bank anticipated. But the government cut the inflation target from 2.5% to 2.0%, and the continued economic recovery is likely to push core inflation up gradually over the coming years. We think that the Norges Bank will raise interest rates in Q1 next year, a little later than investors and most analysts expect.