CPI and CPIF inflation decelerating in April as expected
The consumer price index (CPI) in April increased by 0.2/1.3 percent m-o-m/y-o-y, in line with our estimate. The consensus forecast was a bit higher: 0.3/1.4 percent m-o-m/y-o-y. The CPIF increased by 0.3/1.0 percent m-o-m/y-o-y, identical to our estimate and consensus.
CPI as forecast, but surprises among components
Despite today's reading being close to our forecast, several components surprised. Due to the headline estimate, these were largely cancelled out. April prices for food, communication, package tours, electricity were lower than our forecasts, as were rents. On the contrary, prices for clothing, petrol and audio were higher than our forecasts, as goes for mortgage interest rates. The negative forecast deviation of significance was food, package tours and electricity prices, giving roughly an unexpected -0.1 percentage point contribution. Conversely, the positive forecast errors of importance were those on clothing prices and the "other" category (see below table), adding an unanticipated 0.1 percentage point to April CPI.
Trend for underlying inflation forecast to bottom out in 2012
Overall, the April CPI reading is on track with our inflation projections. Although there were some surprises (especially clothing prices), these forecast errors are fairly small. At this point, they do not have clear implications for our CPI calculations for the coming months. For our inflation outlook, there are other uncertainties of greater magnitude, for instance the strong March employment reading, today's depressed manufacturing data (March IPI) and the set of divergent indicators (PMI vs. NIER's manufacturing barometer). So, the path ahead for the Swedish economy is by no means evident. However, we still forecast a very weak first half of 2012, but growth to recover towards the end of the year. We think the trend for underlying inflation will bottom out this year, but our forecast of CPIF inflation does not decline significantly below today's rate (at 1.0 percent). CPI inflation will, with less boost from mortgage rates, likely climb down further (forecast at about 0.5 percent towards the end of the year). Regarding the current macro uncertainty, alternative macro scenarios should be have greater influence on prices next year, in our view. As domestic (consumer) conditions seem fairly stable, a smooth downward trend for inflation in the shorter term is most likely.