Swedish inflation – January flash CPI
|January inflation
Flash inflation came in lower than expected: CPI at 0.4%, CPIF at 2.0% and CPIF excluding energy (core) at 1.7% y/y. The surprise lies in core inflation, which is significantly lower than anticipated, while energy and mortgage rates appear to have developed in line with our expectations. Uncertainty in January is higher than in other months due to the change in weights. Statistics Sweden update these weights annually to better reflect the consumption patterns of Swedish households. For January, the weight effect is -0.1 for CPIF, which is historically normal and was expected. The updated weight breakdown will be published along with the details on 20 February.
The low flash estimates, combined with Jansson's dovish comments in the minutes, have contributed to the ongoing downward pressure in Swedish rate levels, particularly in the front-end of the curve. That said, the remaining members of the board have mentioned a stronger economic activity in Sweden as a possible counterweight to the somewhat softer inflation outcome. The stronger than expected SEK has been another focus point in the minutes, adding downside pressure to the inflation trajectory. However, since the release of the minutes the SEK has weakened by roughly 1.5 percentage points against the EUR.
High energy prices
The flash reveals that energy prices were high in January, as expected considering the high electricity prices. There is still some uncertainty: spot prices have been high, there has been an increase in grid fees, but there is also a tax reduction on electricity.
Electricity prices have been high across all bidding areas, including the north, where prices are typically lower. One contributing factor to this is the cold and dry weather, as well as increased exports to Finland from Bidding Area 1 (Luleå), which is also likely to continue. So far in February, approximately 40% of Sweden’s power has come from hydropower. Storage levels are at a good level; however, they have been depleting quickly due to the dry and cold weather, which seems likely to persist.
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