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Fast Comment SwedenJanuary inflation in line with expectations

  1. January CPIF inflation down to 1.6 percent (1.9 percent in December)
  2. January CPI inflation down to 1.4 percent (1.7 percent in December)
  3. We overestimated food prices; potential upside for February reading
Inflation reading broadly in line with our forecast, but slightly lower than consensus forecast
The CPIF in January changed by -0.7/1.6 percent m-o-m/y-o-y. This was broadly in line with market expectations. The consensus forecast was -0.7/1.7 percent, whereas our forecast was -0.7/1.6 percent (both m-o-m/y-o-y). The CPI in January changed by -0.7/1.4 percent m-o-m/y-o-y. This was also in line with market expectations. The consensus forecast was -0.7/1.5 percent, while our forecast was -0.7/1.4 percent (both m-o-m/y-o-y). In December, the CPIF and CPI inflation rates were 1.9 and 1.7 percent respectively.
Food prices much lower than we estimated
Looking at the January CPI components, we clearly overestimated January prices on food, clothing, communication and package tours. We expected food prices to show an increase that would have been unusually strong for January due to the strong upsurge seen in vegetable prices. At first glance, there should be some upside for this component in the February reading. At the other end of the spectrum, we underestimated January prices on 'energy' - both petrol and electricity - as well as the mortgage interest cost component (see the graphs below for further details). However, at the time of publishing this comment, we have not updated the data to reflect the new CPI 'basket weights', which today were introduced with the January reading. So, in the below tables, the provided weights are those from 2016. This distorts the calculated component contribution, but the effect is only minor. So, this is not significant for the big picture.
Minor 'basket effect' this year; little implication for 2017 inflation
Statistics Sweden (SCB) writes in the January release that the 'basket effect' this year was -0.1 percent m-o-m. No y-o-y effect is mentioned, so we assume it is around zero, which was our implicit assumption in the calculations for our January estimates. Hence, there was no marked 'January surprise' this year, which also was the case in the previous two years. Inflation forecasts, ours and the Riksbank's for instance, will not be subject to any technical revision then; thus, the inflation outlook, in our view, appears more or less unchanged.


January CPIF inflation in line with our forecast, but slightly lower than the Riksbank's forecast



January CPI inflation in line with our forecast, but slightly lower than the Riksbank's forecast



January CPI, forecast vs. outcome, m-o-m change and component contribution
Note: weights in below table are the 'old' 2016 weights (see above)


Source: Handelsbanken Capital Markets, Macrobond



January CPI, forecast vs. outcome, y-o-y change and component contribution
Note: weights in below table are the 'old' 2016 weights (see above)


Source: Handelsbanken Capital Markets, Macrobond



The highest reading in many years for 'imported inflation' in the CPI



Sudden drop in 'core services component' in January; in line with implicit
assumption in our January estimate; most likely no rapid acceleration ahead in H1





Disclaimer

Anders Brunstedt

Economist

Sweden

anbr42@handelsbanken.se

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