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Fast Comment SwedenFebruary CPI shows no inflation rebound after last month's lower-than-expected reading

  1. Inflation eased marginally and underlying inflation appears to have remained muted
  2. Mopping up the package tour mess, part II: As expected, no rebound in travel prices
  3. Diminishing probability of Riksbank hike this year, but we maintain our forecast of a September move
Inflation eased marginally while underlying inflation appears to have remained muted
The CPI February report shows that headline CPIF inflation eased marginally to 1.9 percent. CPIF, excluding energy prices, remained stable at 1.4 percent, indicating that underlying inflation remains muted for now. This is more or less in line with our estimate and consensus expectations, but the range of analysts' forecasts was unusually wide ahead of this February CPI report and the krona weakened somewhat on impact. After January inflation surprised on the low side, inflation is now trending below the Riksbank's forecast.
Mopping up the package tour mess, part II: As expected, no rebound in travel prices
As we wrote in our preview of today's CPI report, our forecast was affected by news about Statistics Sweden's latest improvement in the method for measuring package tour prices. Without the method change, we judge inflation would have been 0.1 p.p. higher in February. It seems that our call was about right. In other details, we note some action in volatile components, but more interesting core foods surprised on the upside while core service was weaker than expected. All told, a mixed bag.
Diminishing probability of Riksbank hike this year, but we keep our forecast for a September move
Our forecast is for the Riksbank to deliver a policy rate increase in September but, as we wrote in our January macro forecast report, the hike is not a done deal. Following the last two inflation prints, which were significantly lower than the Riksbank, we see the probability of a hike this autumn diminishing further. Even if our January report inflation forecast was lower then the Riksbank's, inflation is now even lower and we will reassess our interest rate forecast in our next macro forecast report on April 9. We maintain our forecast of a rise in underlying inflation but, admittedly, the starting point is now lower. Leading indicators signal room for upside surprises in inflation going forward and plenty can happen between now and the Riksbank's autumn meetings.


February inflation roughly in line with our estimate, below Riksbank's forecast (and our January macro report) 




Services weaker than forecast due to both international travel and core services turning out low




Plenty could happen before uncertain autumn hike from the Riksbank - indicators signal large room for inflation to pick up again 



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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