Riksbank Governor Stefan Ingves and Øystein Olsen, Governor of the Central Bank of Norway. Image: Nils S. Aasheim/Norges Bank
Summary:
- Riksbank proposes switching from targeting Consumer Price Index (CPI) to Consumer Price Index with Fixed Interest Rate (CPIF)
- Riksbank proposes (re) introducing tolerance band of +/-1% from the 2% target rate
- Riksbank had a tolerance band up until 2010
- CPIF up 1.48%, compared to CPI average of 1.04%
- Economists suggests no immediate implications for monetary policy
- If the proposed terms are finalized, new measures will be rolled out by September 2017 Riksbank MPC
The Swedish central bank, in a planned announcement yesterday signaled that it would be targeting a new index called the CPIF as its measure of inflation. The change from the current consumer price index (CPI) to CPIF was proposed amid introducing a new tolerance band which is aimed to give policy makers more room to steer monetary policy.
The changes come as the central bank is seen potentially unwinding its stimulus program after nearly half a decade.
What is the CPIF?
The CPI with Fixed Interest Rate (CPIF) index is said to factor out the changes to mortgage costs, which is usually included in the headline consumer price index (CPI).
The central bank’s tolerance or variation band was set to be one percentage point from the 2 percent target.
Announcing the changes on Tuesday, the central bank tried to downplay the impact of the changes noting that CPIF was already being used as an operational target.
In a paper published in September 2016, the Riksbank said it had been discussing if CPI was the most appropriate variable to target given that the changes in the repo rate via mortgage rates would have a direct effect on the CPI, although it has nothing to do with underlying inflationary pressures.
Riksbank Governor Stefan Ingves said that “The aim of monetary policy will continue to be the stabilization of inflation at 2 percent.â€
