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Fast Comment SwedenInflation in August strengthens our forecast for Riksbank hike

  1. Inflation marginally lower than Riksbank forecast, as we had expected
  2. Stripping out noisy components, underlying inflation is well behaved, pointing to upswing ahead
  3. We stick to our forecast for a Riksbank hike in February 2019
Inflation marginally lower than Riksbank forecast, as we had expected
August CPI data turned out fully in line with our forecast, with CPIF inflation at 2.2 percent. This was marginally lower than expected by the Riksbank and the analyst consensus (see graphs and tables below). Turning to CPIF excluding energy, inflation was a meagre 1.2 percent y-o-y. However, we forecast an upturn to start next month and at year end we forecast an outcome around 1.6 percent.
Stripping out noisy components, underlying inflation is well behaved, pointing to upswing ahead
As we had highlighted beforehand, food, clothes and travel were components that held back August inflation, even slightly more than we anticipated. However, it is interesting to strip out those noisy components and look at signals on underlying inflation. We note that core service prices were a significant surprise on the upside, boding well for inflation ahead.
We stick to our forecast for a Riksbank hike in February 2019
We expect the Executive Board of the Riksbank to deliver a policy rate hike in February. While the Riksbank board itself pointed to both the December and the February meetings in its September monetary policy communication, we are leaning toward the latter because of our own inflation forecast. Today's inflation outcome strengthens our view. It is not a done deal however, so stay tuned for the Riksbank September meeting minutes due Monday, September 17, and the next inflation reading due October 11.

 August




 August




 In line with our forecast



 Services starting to contribute more again....



 ...and we expect indicators of underlying inflation like CPIFXE and Median-CPI to pickup from September onwards







Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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