Swedish February Inflation Data: Inflation In Line But Too Low
Danske Markets | Mar 14, 2018 08:58AM ET
Compared with 'market consensus' the CPIF and CPIF ex energy numbers for February were entirely in line. Once again, however, the figures are on the low side of the Riksbank's projection despite the fact that they lowered the forecasts for 2018 as late as February.
On a detailed level the actual figures came in mixed compared with our forecast. For instance we were too high on food and recreation & culture (the latter includes package holidays) while too low on clothing prices and transport services (the latter includes airfares). But these are rather volatile items and some are likely to correct over the next month or so.
In fact the interesting message is to be found elsewhere. The Riksbank has of late repeatedly highlighted services prices as a concern, or more specifically the fact that the y/y rate for this crucial price category has turned down. The background is that services prices are regarded as being more closely attached to resource utilisation in Sweden. Services prices inflation peaked at 4% in July after a sharp rise during spring 2017. In the previous month (January) that figure had backed down to 2.6% (making the RB sound the alarm) and now the figure is 2.3%. In our view, services price inflation will moderate further in the coming months.
In addition, despite the sharp rise in EUR/SEK, prices on imported goods & services are not moving anywhere on a y/y basis 6 probably because of the offsetting effects of a lower USD/SEK.
The RB was close to pushing planned rate hikes further into the future. March inflation figures will be available before the Riksbank makes up its mind (see our preliminary forecast in the table). If we are correct, even with some margin on the upside, we expect them to alter the rate forecast, pushing the first hikes beyond 2018 (into Q1 19 which given our inflation projection will prove to be too early as well).
The market has scaled back some of the earlier expected rate hikes but is still pricing in 22bp rate hikes this year, which we do not think will be delivered by the Riksbank. Hence, long positions at the front of the curve remain attractive (i.e. we are receivers in FRA-Mar 19 and in 1y/1y SEK versus EUR) while the latent upward pressure on EUR/SEK is likely to persist .
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Swedish February Inflation Data Inflation In Line But Too Low
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