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Fast Comment SwedenPreview of March inflation

  1. Expect a surge in inflation...
  2. ...but the spike is temporary, as the CPI is once again riding the airfares rollercoaster
  3. Underlying inflation on an upward trend, giving the Riksbank an opportunity to stay the course at April meeting
Expect a surge in inflation...
The March data for Swedish consumer prices is due Thursday, April 12. We expect CPIF inflation to spike, reaching 2.2 percent y-o-y after a February reading of 1.7 percent y-o-y. Much of this is explained by an Easter holiday effect on airfares (see below). Also, some of the inflation burst is explained by a continued rise in energy prices. Therefore, we expect the spike in CPIF excluding energy (CPIFXE) to have been more muted, with a March outcome at 1.8 percent y-o-y (compared to 1.5 percent in February). See tables below for further numerical details. For updated consensus expectations ahead of March inflation, please keep an eye on our Economic Calendar over the coming days.
...but the spike is temporary, as the CPI is once again riding the airfares rollercoaster
The Easter holiday effect on airfares occurs because many of this year's expensive holiday trips fell in March, in contrast with last year when they took place in April. This means that the March spike in y-o-y-terms will inevitably be followed by a negative rebound in the April CPI. That said, a new tax on air travel was introduced in April, so that could dampen the price fall slightly.
Underlying inflation on an upward trend, giving the Riksbank an opportunity to stay the course at April meeting
Looking past energy price fluctuations, the sometimes volatile airfares and other distractions, underlying inflation remains healthy. Supported by the bulk of important leading indicators, we forecast a gradual rise in CPIFXE inflation during 2018 (see graphs below). Admittedly, some data outcomes have been disappointing since the Riksbank's most recent monetary policy decision. But the close-to-target March outcome we expect, coupled with a weakened krona, gives the Riksbank some breathing space. All in all, we see the Riksbank staying the course and not changing the repo rate path at the April meeting. (A more detailed discussion on the upward trend in inflation is found in our Macro Comment from last month: http://research.handelsbanken.se/Macro-Research/All-Publications/publication/26676/macro-comment-sweden)


CPIF excluding energy to temporarily jump back up to Riksbank forecast in March outcome, and rise somewhat over the course of 2018



CPIF seems to remain above the Riksbank forecast this year as energy prices have risen steeply 



 CPI March estimates



CPI March estimates 




Easter holiday effect pushing airfares higher in March and new air travel tax mitigates the recoil in April 





Leading indicators and krona exchange rate support above-average CPIFXE inflation 



New indicator info yields upward revision tendency in CPIFXE forecast models 



Indicators of underlying inflation somewhat mixed lately, but higher than a year ago 



Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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