Economic commentary: The CPI will increase more rapidly than the CPIF over the next few years

Date 09/06/2011

This Economic Commentary describes the difference between two measures of inflation: the CPI and the CPIF. These two measures are identical in all but one respect. Changes in mortgage rates have a direct impact on inflation measured in terms of the CPI. In the CPIF, mortgage rates are held constant. When the financial crisis began, the Riksbank cut the repo rate substantially. Now it is expected that the Riksbank will continue to raise the repo rate to more normal levels during the forecast period. As this will lead to rising mortgage rates, inflation measured in terms of the CPI will exceed the target. However, the rate of increase in the CPIF will be lower and close to 2 per cent during the forecast period. In the long term, the two measures will coincide, but as fixed mortgage rates are also increasing this is not expected to happen until around 2016. The expectation that the difference between the CPI and the CPIF will be unusually large, above all during 2011, relates to the fact that mortgage rates are rising rapidly from a low level.