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Fast Comment SwedenNovember CPI not in tune with Riksbank's wishlist; we stick to our forecast for a February rate hike

  1. Inflation below Riksbank forecast for a second consecutive month
  2. Not in tune with the Riksbank’s view, unforgiving details
  3. With disappointing inflation, preference for a united board tips the scales to a February hike
Inflation below Riksbank forecast for a second consecutive month
The November CPI shows that headline CPIF inflation decelerated from last month, from 2.4 to 2.1 percent, roughly in line with our forecast and market consensus. The Riksbank, which finalised its estimate two months ago, was too optimistic for a second consecutive month. CPIF excluding energy (CPIFXE) – the only underlying inflation indicator forecast by the Riksbank – increased by 1.4 percent, also slower than anticipated by the Riksbank (our estimate 1.5 percent, consensus 1.6 percent).
Not in tune with the Riksbank’s view, unforgiving details
Looking at CPIF inflation trending closely around the two percent target for two years, some central bankers would say it is even more than they need, it is what they really want. On the other hand, some would instead be frustrated finding that CPIFXE inflation is not accelerating. And accentuating the lacklustre impression, we find that the Riksbank’s wider range of underlying inflation indicators likely fell in November (see chart). Looking ahead, however, the all-important inflation outlook is healthy in the short term. Underlying inflation has, in a broad sense, trended upward since 2014 and above-average inflation is signalled by both leading indicators and lagging effects of past exchange rate depreciation. But there is a darker side – new questions about the medium-term inflation outlook have arisen, e.g. concerning the strength of the business cycle following two consecutive disappointments in GDP.
With the disappointing inflation, preference for a united board tips the scales to a February hike
With the low inflation, we do not believe the Riksbank's Executive Board is prepared to unanimously vote for a policy rate hike at its December meeting. We judge that Governor Stefan Ingves prefers a united board behind the Riksbank’s first hike in seven years, and our main scenario therefore remains - that the board will hold off until the February meeting.

Well below Riksbank's forecast again 



We estimate that also the Riksbank's underlying inflation indicators decreased overall 



Still, inflation is broad based 



Services doing OK 



 


Volatile Fruit and vegetables disappoint, but important Core services also lower than forecast





Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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