Haver Analytics
Haver Analytics

Economy in Brief

  • Inflation in Sweden rose by 0.6% in November after rising by 0.7% in October and gaining 0.2% in September. HICP inflation is on another strong streak in Sweden. But, year-over-year Swedish inflation is up by only 2%. There is a parallax view of price pressure from the domestic inflation gauge where the monthly gains are only about half the gains of the HICP monthly, and where year-on-year inflation is up by only 1.5%, slips to a 0.4% pace over 6-months then accelerates sharpy to a 3% pace over 3-months – quite different from the HICP pattern and inflation levels. Both domestic and HICP inflation are well behaved over 12-months and while these readings differ a lot after that (over 3-Mo and 6-Mo) they both show inflation accelerating over 3-months compared to its 12-month pace. In neither case is inflation still falling.

    In November inflation accelerated for food and non-alcoholic drinks, for health and medical care, for recreation, and for other goods and services. Inflation accelerated in 55.6% of the categories, the same as in October down slightly from 66.7% of the categories with accelerating inflation in September.

    The readings in the pattern for domestic inflation are clear and muted. But HICP inflation in Sweden may be becoming a problem as it stops falling too soon. It may be becoming a bigger problem as sequential inflation rates for 12-months, six-months, and three-months show a steady increase in inflation although that is not accompanied by a steady rise in diffusion.

    Diffusion is derived from the domestic index Over 12-months inflation is decelerating in all categories compared to 12-months ago. This is the sense of progress that Sweden has made on past high inflation. But over six-months compared to 12-months inflation is accelerating in 55.6% of the categories. That occurs with the overall domestic inflation rate rising by to only 0.4% at an annual rate from its 1.5% pace over 12-months; given the decline in the pace of inflation the increase in diffusion is surprising. Over three months the diffusion rating decelerates logging a reading of 33.3%, down from 55.6% over 6-months. The diffusion calculation compares 3-month inflation to the six-month inflation rate across categories. The headline domestic pace, of course, accelerated to 3.0% over 3-months from 0.4% over 6-months – still, diffusion narrowed. Inflation and diffusion are out of step.

    Two inflation measures, quite different inflation What we see here is a substantial difference between the national CPI and inflation as measured according to the HICP. The national CPI shows 12-month inflation at 1.5% dropping down to 0.4% at an annual rate over six months and then re-accelerating the 3% over 3-months, while the HICP shows a steady acceleration in Swedish inflation. The national index shows the step down from 12-months to six-months and then a significant step up over three months, although the step up is to a pace that's only half of the pace that's measured by the HICP. Even so, there is a step up in inflation over 3-months the same as for the HICP. According to the national CPI, there's an increase in prices over 3-months in housing costs to 5.7% from -7.7% and transportation costs that only fall by 2% after falling by 14% over 6-months. But those two readings are enough to accelerate the headline in the national index to 3.0% from 0.4%.

    Inflation rankings The rankings on inflation orders each category on its 12-month price gain historically. This ranking shows the HICP has a 69-percentile rank meaning it has been higher only 31% of the time. On the other hand, the national index has only a 47-percentile rank, which says that it is below the 50% mark, indicating that inflation is below its historic median and that refers to the year-over-year rate of 1.5%. As such, it's below its median and thar is true of all categories of domestic inflation except clothing and footwear, education, healthcare, Recreation, and other goods and services. Costs have become weak by historic standards (below median).

    Inflation is no longer falling Whether we use the domestic gauge or the HICP gauge Sweden's inflation is becoming more of a problem based on momentum. The monthly diffusion numbers have been above 50, indicating there is more acceleration than deceleration for the last three months. However, the national CPI numbers have been persistently below and approximately half the gain being registered by the HICP. The HICP is the kind of index that is used across Europe and by the European Central Bank to assess inflation in the European Monetary Union. All this leaves us with a bit more of a complicated view of inflation in Sweden but at the very least the bottom line is that inflation is no longer falling and that's a trend that's been noted across many countries. Even countries like Sweden that have made tremendous progress over where inflation was a year a year and a half ago have seen progress stall. All of a sudden inflation has become stuck and generally stuck at a level that's higher than where the target is. Sweden has its year-over-year numbers in place, but its shorter tenor numbers are showing more pressure, making the outlook more uncertain. But because of the current pace of inflation being stuck here, it is not so uncomfortable as it is being stuck at current inflation rates elsewhere in the world.

  • In our penultimate Charts of the Week publication for 2024, we turn our attention to the upcoming year and highlight several themes that are poised to mould the economic and financial market landscape. Although a soft-landing consensus for the world economy is presently implicit in most economic forecasts for next year (chart 1) that view is not without challenges. Uncertainty about the economic outlook has bolted sharply higher in recent weeks (chart 2) partly because of the likely major - and potentially disruptive - policy changes from a new US administration (chart 3). Lingering supply-side challenges, such as climate change and the energy transition, are also generating a great deal of economic and political instability at present, most notably in Europe (charts 4 and 5). In the meantime, many Asian economies face additional challenges, including the potential for higher tariffs on trade (chart 6) and lingering debt-related problems in China (chart 7). Generating sufficient domestic growth momentum to mitigate those problems is also proving to be tough for a number of countries, not least in Japan (chart 8). As Japan’s policymakers are all too aware a key reason for weak domestic demand momentum is ageing demographics, a structural problem that will likely remain in vogue in 2025, not least in the realm of healthcare provision and fiscal policy (chart 9). Geopolitical risks will also likely remain elevated even if there is some progress next year in mitigating those risks in Eastern Europe and the Middle East (chart 10). Finally, and ending on a more positive note, there are some offsets to these downside risks, not least via the productivity-enhancing potential of AI technology (chart 11). The rebound that has been unfolding in the travel and tourism sector in recent months is also noteworthy, and a push back against the trend toward a de-globalisation of the world economy in recent years (chart 12).

    • Food prices pick up.
    • Services price gains remain steady.
    • Core goods prices pick up.
    • Personal income tax receipts weaken.
    • Corporate tax payments roughly halve y/y.
    • Social Security spending fuels outlay growth.
    • Applications to purchase a house drop, while applications to refinance surge.
    • Slight decrease in rates on 30-year fixed-rate loans.
    • Average loan size decreases modestly.
  • Inflation in the European Monetary Union rose sharply in November, logging a 3.1% annual rate increases on a month-to-month basis. This represents an acceleration from a 1.9% annual rate month-to-month change in October and follows a 2.5% annual rate decline month-to-month in September. The core HICP is available only through October, a month when it expanded month-to-month at a 3.2% annual rate, after falling month-to-month in September at a 0.3% annual rate. The month-to-month inflation results and trends are not particularly encouraging.

    Monthly trends mix good with bad news- The table below presents annualized rates of change on all horizons to permit easy comparisons of one tenor with the next. In November, the median annualized inflation rate for this group of 10 countries was an annual rate gain of 1.9%. That represented an acceleration from 0.9% in October; October represented an acceleration from -3.2% at an annual rate in September. All the median results are below the 2% target set by the ECB – and that is good news- but the trend in the monthly data remains adverse. But, of course, we also have the overall EMU results that show inflation just under ‘target’ in October at 1.9% but back to excessive in November at 3.1%.

    Monthly sequences by country disappoint- Looking at the monthly sequence of inflation numbers, Belgium shows monthly inflation trends from September to October to November accelerating steadily, as does Luxembourg, the Netherlands, and Spain. There are no countries in this sample with inflation rates showing step-wise deceleration from September to October to November except Greece.

    Broader sequential inflation patterns However, sequential inflation, viewed broadly from 12-months, to six-months, to three-months, shows deceleration in the headline with 12-month inflation at 2.3%, the six-month pace falling to 1.7%, annualized and the three-month pace down to 0.8% at an annual rate. The core CPI that is calculated by lagging data by one-month shows relative stability over 12 months and six months, amid only a minor 6-month backtracking, and then a drop off in the three-month annualized inflation rate to 2.1% - essentially on-target.

    Broad cross-countries annualized inflation rates over 12 month, six months, and three months, show a steady decline in the pace of inflation for Belgium, France, Germany, Italy, Luxembourg, the Netherlands, and Ireland. Only Portugal, Spain, and Greece fail to show decelerating patterns; among those countries, there's no discernible acceleration or deceleration tendencies.

    Good news- tempered- The appearance of broad sequential deceleration is good news; however, it does buck the trend of significant accelerating tendencies for inflation over the last three months and that raises some question of where the trend is really headed. Over three months compared to six months inflation decelerates 70% of the categories; over six months compared to 12 months inflation decelerates 90% of the categories; inflation over 12 months compared to what it did 12 months ago shows deceleration in only 40% of the categories. The median inflation rate for the monetary union shows deceleration falling from a 2.4% annual rate over 12 months, to 1% pace over six months, to a 0.2% annual rate over three months inflation progress. But the headline is not as compliant as that. At the same time, good trends are present, and good news is elusive depending on the timeline and metric we wish to focus on.

    Mostly excessive inflation over 12 months- With an ECB target inflation rate of 2%, the 12-month change in the HICP is excessive at 2.3%. The core which lags a month is excessive but the pace at 2.8% year-on-year. Inflation, measure year-on-year, is excessive in Belgium, Germany, the Netherlands, Portugal, Spain, and Greece. Inflation is compliant or below the target set by the ECB in France, Italy, Luxembourg, and then Ireland. Of course, these are only references, only the official EMU-wide inflation rate matters.

    • Annual increase remains below last year’s gain.
    • Compensation growth dips.
    • Increase in unit labor costs slows.
    • November NFIB Small Business Optimism Index up 8.0 pts. to 101.7.
    • Uncertainty Index down 12 pts. to a three-month-low 98.
    • Expectations for economy up 41 pts. to 36%, the highest since June ’20.
    • Expected real sales up 18 pts. to 14%, the highest since February ’20.
    • Inflation (20%) remains top business problem, followed by Quality of Labor (19%); both slightly down from October.