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Fast Comment SwedenInflation in December

  1. Inflation marginally below the Riksbank's forecast, but only due to volatile components
  2. Package tours and, to some extent, airfares disappoint; prices for core services remain buoyant
  3. Outcome does not affect outlook for Riksbank policy, in our view
Inflation marginally below the Riksbank's forecast, but only due to volatile components
Swedish consumer price data for December showed that CPIF inflation decreased marginally to 1.9 percent y-o-y. This was in line with analysts' forecasts (consensus median: 1.9 percent), but just below the most recent Riksbank forecast from the December Monetary Policy Report (MPR) and our own estimate (both 2.0 percent y-o-y). After the weaker-than-expected outcome for Danish inflation, there was talk of market participants expecting a similarly poor reading from today’s Swedish data. As CPIF instead came in as expected, there was no initial market reaction in the krona. The upbeat trend in underlying inflation should be seen as intact, despite the fact that CPIF excluding energy decreased marginally to 1.7 percent y-o-y. The component which dragged down core inflation was the volatile international travels component, while core service prices, for example, remained buoyant. More numerical details can be found in the table below.
Package tours and, to some extent, airfares disappoint; prices for core services continue to remain buoyant
While core service increased 2.8 percent y-o-y, a negative surprise from package tours dragged down overall service prices. We had also expected a slightly higher reading for airfares. These are volatile components, so we do not see this single outcome as the start of a new trend. However, we will be monitoring it going forward, as the weak krona should push these components higher, based on past experience.
Outcome does not affect outlook for Riksbank policy
Since this forecast error is not related to underlying inflation, a material downward revision to the next Riksbank forecast in February should not be expected. In addition, there is a only a limited risk of a downward shock in January, in our view, leaving us with the conclusion that this outcome will not bother the Riksbank.


 Service prices surprices on the downside...



 ...But that was caused solely by international travel, not least package tours.



 Sideways movement in important indicators of underlying inflation



 And clothing and shoes ended the year on a positive note





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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