Swedish Feb CPI Preview: Fuel Prices Rebounding

The key question for February and the coming months are the effects of the weaker SEK. The SEK has indeed depreciated over the past year and that has already affected inflation. The SEK weakness to give a further boost to consumer prices during the coming months. The effects and the timing are difficult to assess, though.

Nordea notes in a report on Friday:

• We see risks as fairly balanced for February. Fuel prices rose in February and have continued to rise in March. They lifted the CPI by somewhat more than 0.2% point in February, and staying at today's level they will add additional 0.1% point in March.
• This is in turn an important reason to why we see CPIF inflation at 1.1% in March, 0.25% points above the Riksbank's call. Notably, the Riksbank has assumed low energy prices especially for H1 2015, see chart below.
  
  
• Admittedly, the Riksbank's future monetary policy stance is difficult to judge. However, the probability tips over for Riksbank trying to stimulate the economy further in April by cutting the repo rate to minus 0.20% and extending the bond purchase program.
  
  
• We expect the CPI to be up by 0.6% m/m in February. The CPIF should come in at 0.7% y/y according to our forecast, in line with the Riksbank's view.