We forecast that inflation should be lower in April than it was March in terms of both CPI and CPIF. This follows from our April forecast that CPI and CPIF readings will each increase by 0.1 percent m-o-m. Our outlook on consumer prices remains unchanged, pointing to a longer period of subdued inflation. In the coming months, we project CPI inflation to trend around 0 percent and CPIF inflation about 1 percent higher.
We forecast the March CPI to increase less than the historical average for March. Still, price hikes are enough to lift CPI inflation to zero, up from the zone of deflation in February (-0.2 percent). We expect higher clothing prices to be the main driver of the CPI increase, but the forecast price increases this year are smaller than typical March prices hikes (on clothing). As we estimate basically no CPI contribution from mortgage interest rates in March, the CPIF measure is forecast to move in parallel. Our projection, as with previous updates, puts CPI inflation close to zero percent while CPIF inflation is forecast to linger for some time below one percent.
The Swedish GDP reading for Q4 2012 beat forecasts, despite no change since Q3. Our Q4 estimate of a marked GDP decline proved far too pessimistic, where domestic demand components in particular were unexpectedly strong. Qualitatively, our outlook on Sweden remains fairly unchanged, but base effects boost 2013 GDP growth to 2.0 percent. In summary, the period of GDP growth below trend is likely to be shorter and less depressed than we expected. However, we still think a weaker labour market in 2013 is the most likely scenario. We also maintain our view that the Riksbank will not ease further, leaving the repo rate at 1 percent throughout the year.
We forecast a monthly increase in consumer prices in February, largely driven by price hikes typical for the season, e.g. clothing and food. With only a minor estimated impact from mortgage interest rates, our estimates for CPI and CPIF show an increase of 0.3 percent since January, respectively. This brings inflation down, comparing to January, and CPI into negative territory once again, similar to the end of 2012.
We forecast significant declines in CPI and CPIF in January. Note, however, that the new weights for the CPI basket are introduced, as normal, in January. Due to this, January has brought some unexpected readings historically. Yet, our forecasts maintain January inflation in very low territory, with CPI inflation at 0.2 percent and CPIF inflation at 1.2 percent. Compared to the inflation rates in December, this means a slight increase in both inflation measures (CPI and CPIF). However, our forecast is declining inflation into Q1, with CPI likely to trend with deflationary figures.
We forecast a slight CPI decrease in December, taking inflation further into negative (i.e. deflationary) territory. The CPIF measure, which excludes the effects of mortgage interest rates, should post a monthly increase but CPIF inflation will remain under one percent. Looking ahead, we expect low cost pressures and weak demand growth in 2013 to keep CPIF inflation below 1.0 percent for the majority of the year. Sustained low mortgage interest rates will most likely keep y-o-y CPI inflation comparisons negative (i.e. in deflationary territory) for a considerable time in 2013.