Swedish inflation in July (CPI 2.2% y/y and CPIF 2.4% y/y) solidly breached the 2% line and (again) exceeded our expectations.
Something remarkable is happening in the sense that the acceleration is more or less down to one factor, package holidays, which are behaving in a way never seen before. Typically the prices rise in May-July. In the years 2013-2016 the average accumulated increase was 23.3%. This time around the number is 49.7% (!).
In July alone package holidays rose by 17.7% bringing the year-on-year rate to 30.3% - an all-time high. Package holidays is an item under 'recreation and culture' the latter now showing a rate of inflation of 4.4% of which package holidays account for 3.13 percentage points.
This extreme development seems to come from a combination of a new calculation method, strong demand for holidays abroad and possibly some lagged krona effects.
Since a new calculation method is part of the explanation we feel some uncertainty about how to deal with the numbers going forward. Typically, package holidays correct down in August by some 45% of the accumulated rise in May-July. If that pattern holds we should see a drop by some 22% in August versus a 9.8% drop in August last year - but that remains to be seen.
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