Swedish Central Bank sees ‘uncertainty’ in changing price index

Bloomberg

Sweden’s central bank presented a careful analysis on potentially changing the inflation measure it aims for, highlighting in its conclusion that any switch could damage confidence in the price target.
While the current consumer price index is “somewhat problematic,” policy makers found that switching the measure could create “uncertainty” and “lead to expectations that it may be replaced again,” the Riksbank said in a report discussing the pros and cons of a new inflation gauge. The bank has argued that its current gauge — the consumer price index — creates the illusion of disinflation when rates are cut since it include mortgage costs.
Even so, changing to another index, such as CPIF or HICP, would have limited impact, the bank said. “In recent years, monetary policy has been based, in practice, on the CPIF which has tended to develop in a similar manner to the HICP, in numerical terms,” the bank said.
Swedish policy makers are reexamining their inflation targeting measures after being forced to unleash a battery of stimulus — including negative interest rates — to jolt the economy out of deflation. Central bankers around the world are struggling to meet inflation targets amid rising global competition and aging populations in developed nations.
The Swedish bank’s efforts, which have also included asset purchases, are having an impact. Headline annual inflation has risen to 1.1 percent and underlying inflation, or CPIF, is at 1.4 percent.