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Fast Comment SwedenPreview of September inflation: Underlying inflation strengthening, but more slowly than Riksbank hopes?

  1. Inflation picking up further
  2. Underlying inflation leading the way, one indication being an expected lift in CPIF excluding energy
  3. Clothing and shoes among risks to this month's CPI print
Inflation picking up further
We expect September CPIF inflation of 2.3 percent, slightly higher than last month's outcome. Unlike recent developments, we expect Thursday's inflation print to be driven to a larger extent by other CPI components beyond energy prices trending upward. In part due to base effects, we expect CPIF excluding energy (CPIFXE) to accelerate from 1.2 to 1.5 percent y-o-y (see table and graphs below). Despite such positives, we forecast that inflation will remain below the Riksbank's forecast in the near term.
Underlying inflation leading the way, one indication being an expected lift in CPIF excluding energy
The Riksbank continues to clarify its communication about underlying inflation, last week in an economic commentary that takes a closer look at the range of indicators used by the Riksbank. While we have always emphasised a broad approach to gauging underlying inflation, and hence, to understanding the way the Riksbank analyses inflation developments, it is worth remembering the rather widespread confusion around the time of the April monetary policy announcement. Some journalists, analysts and professionals had started to suspect that the Riksbank had a new de facto target variable, CPIFXE, so the clarifying communication from the Riksbank is valuable. In September, we forecast a large rise in CPIFXE and price developments are also likely to move other underlying inflation indicators upwards, closer to two percent, i.e. improving the odds of sustained target achievement for the Riksbank. Remember, however, that all these indicators do not necessarily need to be at two percent for the Riksbank to reach its target durably. One example is CPIFXE, which on average undershoots the target variable CPIF because of the 20 plus years' long rising trend in the relative price of energy products.
Clothing and shoes among risks to this month's CPI print
Last month, clothing and shoes rose slowly, but we attribute that partly to the unusually hot summer weather. Therefore, we forecast a rebound in clothing and shoe prices this time. Still, our forecast is low by historical standards, implying an upside risk. At the same time, clothing and shoes have been the source of large disappointments in recent years, as in 2014 before forecasters had detected a change in seasonal patterns. Keep an eye on this component!


Pick up in CPIF excluding energy, but still slightly lower than Riksbank forecast 



And we expect inflation to remain on lower paths than the Riksbank has anticipated 



A resurgence among indicators for underlying inflation can be expected, with the turnaround in CPIFXE one sign   




Two percent CPIFXE inflation not necessarily compatible with the Riksbank target (two percent CPIF inflation), because of longstanding upward trend in the relative price for energy products



Clothing and shoe prices to reach roughly last year's level 



 Monthly change details



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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