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Fast Comment SwedenA sigh of relief for the Riksbank; September CPI data mostly strong

  1. Key inflation indicators somewhat stronger than expected...
  2. ...as signals on underlying inflation strengthen
  3. Highly determined Riksbank can tick another box on the route to its rate hike
Key inflation indicators somewhat stronger than expected...
The September CPI data today showed a lift in underlying inflation, as has been expected by both the Riksbank and us. One indication is that CPIF excluding energy increased faster than the last couple of months, +1.6 percent y-o-y. That is in line with the Riksbank’s forecast and, crucially, the direction is right. As we describe below, other important indicators of underlying inflation are also picking up, but at the same time, not all of the CPI report’s nitty-gritty was convincing. All-in-all, though, it was a robust inflation reading. Turning to headline inflation, CPIF inflation was above expectations (see table and graphs).
...as signals on underlying inflation strengthen
Looking at the details of the CPI outcome, they were convincing overall, in our view. For instance, core services was somewhat stronger than we anticipated. Some of the inflation surprise was, however, driven by a rise in fruit and vegetables prices, which may well turn out to be a temporary boost following difficult weather and a weakening Swedish krona. Turning to various indicators on underlying inflation, the takeaway is that this was a robust inflation pickup. The Riksbank's broad-based approach to this analysis will certainly note that service prices have also turned around after weak developments in the past year.
Highly determined Riksbank can tick another box on the route to its rate hike
The Riksbank already seems to be arguing for a coming first policy rate hike with more conviction than before.Today's CPI means the executive board can tick another box on its way toward the decision. Indicators on underlying inflation rose, underpinning the Riksbank's forecast for inflation durably staying around the two percent target. While the Riksbank has appeared genuinely uncertain in choosing between the December and February meetings mentioned in its monetary policy guidance, our main scenario is February.

Key September inflation data



Food and Energy the biggest surprises  



Back at the Riksbank's October forecast path




Several strong signals on underlying infaltion 





Yesterday's inflation expectations outcome underscored the re-anchoring of recent years







Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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