Households and companies pressed by high interest rates can rejoice at an unexpectedly weak inflation figure for June from the USA.
Now, the likelihood of multiple interest rate cuts this year – including on Swedish mortgages – increases.
I believe that heavily pressured households can hope for quite clear interest rate cuts this autumn, says Jens Magnusson, chief economist at major bank SEB.
"The market takes it in"
This scenario is based on market interest rates and banks' costs for mortgages being pushed down by lowered policy rates from central banks – including the Swedish Central Bank.
The market takes it in. They see the June figure from the USA as evidence that inflation is permanently on its way down in the USA, and that will also make it easier for other central banks, says Jens Magnusson.
The market reaction to the report was clear. Market interest rates are being pushed down, the dollar is falling, and stock market sentiment is rising worldwide as risk appetite increases. The likelihood of lowered policy rates in the USA this year also increased in the pricing of the interest rate market.
The June figure of 3.0 percent in CPI inflation in the USA means two months in a row with unexpectedly low US inflation. This creates expectations among market actors of at least two interest rate cuts – i.e., 0.50 percentage points – in the USA this year. Maybe even three cuts.
The likelihood of the Swedish Central Bank lowering rates at least three times this year is also strengthened, according to Magnusson.
Market interest rates, mortgage rates, and policy rates are not exactly the same thing. But basically, lower policy rates also mean lower mortgage interest rates, he says.
Period may be over
The unexpectedly low US inflation also confirms the picture that the global economy will soon be able to put the inflation worry aside.
It's not unreasonable to do what many are doing now and start labeling this inflation period as over, says Magnusson.
Ahead of Friday's Swedish June inflation from Statistics Sweden (SCB), he reminds us that May inflation in Sweden was unexpectedly high.
It will be important to now see that the May figure was something temporary, which we believe, and that it turns down quite clearly with the June figure. Or if this is something that continues to surprise on the wrong side – well, then we're partially in a different situation.
Inflation in the USA fell to 3.0 percent in June, according to fresh figures from the US Department of Labor. This can be compared to 3.3 percent in May.
The decline was unexpectedly large. The average prognosis among analysts was an inflation – i.e., a consumer price increase in annual terms – of 3.1 percent in June, according to a compilation made by Bloomberg.
The underlying inflation – excluding food and energy prices – fell to 3.3 percent from 3.4 percent in May. There, analysts had counted on an unchanged inflation.
Compared to May, consumer prices fell by 0.1 percent in June. Analysts had counted on an increase of 0.1 percent.
The dollar loses over 10 öre against the krona, and American market interest rates fall sharply after the report from the US Department of Labor. Even stock markets around the world react positively, and expectations of lowered policy rates increase.
