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Fast Comment SwedenMay inflation above Riksbank target as positive energy price trend continues

  1. Inflation in line with expectations, and will rise further in June
  2. The energy price rise is no longer a temporary nuisance for the Riksbank
  3. Another sign that the Riksbank will indeed hike its policy rate in December
Inflation in line with expectations, and will rise further in June
The May CPI data shows CPIF inflation at 2.1 percent, fully in line with expectations, but above the most recent Riksbank forecast. CPI as well as CPIF excluding energy also increased in line with our expectations (1.9 and 1.5 percent y-o-y, respectively). Important to remember is that the electricity price rise actually cooled somewhat in May, but has since accelerated again. This contributes to our view that June CPIF inflation will be even higher than today's May Reading, roughly 2.3 percent.
The energy price rise is no longer a temporary nuisance for the Riksbank
The energy price surge of the last two years continues. This means that it can hardly be seen as a volatile nuisance that the Riksbank should disregard. Instead it is looking more like a driver, starting to push inflation via expectations and second-round effects hitting firms' cost pressure.
Another sign that the Riksbank will indeed hike its policy rate in December
We stick with our forecast of a policy rate hike in December. Today's outcome adds to the view that 2018 will be the second consecutive on-target year for the Riksbank (see graphs below).


Headline inflation above the Riksbank forecast, well in line with the inflation target 




The Riksbank's preferred indicator of underlying inflation also increased, albeit marginally 




Other indicators of underlying inflation not fully conclusive, but gradually moving upward 





 Massive contribution from surging energy prices



Small disappointment in services, but mostly due to erratic domestic travel prices








Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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