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Fast Comment SwedenPreview of November CPI: Riksbank target reached, but underlying inflation continues to frustrate

  1. Inflation stays below the Riksbank forecast...
  2. ...But outlook for 2019 remains positive, so will it matter?
  3. More risks than usual to this November-CPI?
Inflation stays below the Riksbank forecast...
For the second month in a row, inflation will fall short of the Riksbank’s expectation. Crucially, however, we forecast CPIF inflation to have stayed above the Riksbank’s target in November, decelerating from 2.4 to 2.2 percent. Equally important, we see underlying inflation staying at the higher levels registered since the September CPI release. That being said, CPIF excluding energy (one of the underlying inflation indicators used by the Riksbank) will not accelerate further, we believe. Instead, it will continue to frustrate the Riksbank executive board by amounting to 1.5 percent, visibly below its most recent forecast. Our CPIFXE forecast is in the middle of the range of our forecast models.
...But outlook for 2019 remains positive, so will it matter?
So, another forecast miss, but will the Riksbank care? The all-important inflation outlook remains strong in the short term. First, inflation is broad-based, even if the energy price rise has contributed disproportionately over the past couple of years. Second, underlying inflation has, in a broad sense, trended upward since 2014, but is admittedly flat compared to a year ago. Third, looking ahead, above-average inflation is signalled by both leading indicators and residual lagging effects of past exchange rate depreciation. At the same time, the Riksbank's executive board will have to ponder new questions about the medium-term outlook, e.g. the strength of the business cycle. We maintain our prediction of a first rate hike in February. The probabilities for December and February rate hikes are quite balanced though, so a larger surprise to November CPI could well tip the scales.
More risks than usual to this November-CPI?
Are there large risks to next week's inflation print? November does not count among the most difficult months to forecast, but we see more risks than usual this year. For starters, energy prices are difficult to pin down following the electricity price roller-coaster and we have pencilled in a conservative estimate as model forecasts are mixed. Food prices have been in focus after this year's extreme weather, but fruit and vegetables prices surprisingly dropped last month. Is a rebound on the cards? Not quite, we think, as November rarely sees a rise in this component and recent krona strength will dampen prices. That being said, producer prices for foods are rising quite fast, so there is an upside risk. A third risk surrounds core goods prices, following the now rapidly growing Black Friday-phenomenon. In recent years, the CPI-data have provided tentative signs that October features fewer sales, while November price increases have been smaller (even decreasing in 2016). We have reacted moderately by forecasting unchanged core goods prices, rather than the rise suggested by our models. All in all, plenty of risks on both sides of our CPIF forecast.

CPIF inflation around Riksbank target for two years, and high underlying inflation is an important driver 

CPIF stays within "variation band" of the Riksbank, but stubbornly below its forecast

CPIF excl energy below Riksbank's, and our recent (not shown), forecast 

Broad based inflation, while energy price rise is cooling somewhat 

Indicators suggest upside to inflation in 2019, and on top likely lagging exchange rate pass-through 

Oil and electricity prices currently move in opposite directions 

Producer prices for food on the rise, but rumoured drought effects have not materialised yet. 

Bleak year for clothing prices overall, but in recent years November has meant monthly increases  

Details: Turnaround in fuels following oil price drop, international travel off the charts as usual 

Details: Fruit and vegetables prices rising fast 


Johan Löf

Senior Economist


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