The Swedish central bank opted to look through the current uptick in inflation and to keep the base rate unchanged in 2022 and 2023. Higher CPI readings were the result of higher
– energy
– food prices and
– supply chain disruptions
Till date there are little to no signs of second round effects, but wage growth figures will be crucially important. According to the Riksbank, Sweden is struggling with hiring issues (less demand for unskilled workers, more for skilled ones) that might lift real wage growth figures during the next few quarters.
We expect same cautiousness form the FED: somewhat softer tone considering the tapering process. Downside pressure is accumulation on the global growth outlook (4th wave of the Corona virus, Evergrande in China), thus the monetary authority is expected to be a bit more forgiving of headline CPI and PCE figures rather than act too early and jeopardize positive changes in employment.
As for the long term consequences… see our earlier article.
