Bloomberg News

Sweden Inflation Slows More Than Estimated as Growth Wanes

October 11, 2011

(Updates with analyst comments in fourth paragraph.)

Oct. 11 (Bloomberg) -- Swedish inflation slowed more than estimated in September, damping pressure on the central bank to resume raising interest rates.

Headline inflation slowed to 3.2 percent from 3.4 percent the previous month, Statistics Sweden said today. The rate was expected at 3.3 percent, according to the median estimate of 13 economists surveyed by Bloomberg. Prices rose 0.7 percent from the previous month. Inflation adjusted for mortgage costs, or CPIF, slowed to an annual 1.5 percent from 1.6 percent.

Sweden’s central bank, the Riksbank, kept its benchmark lending rate unchanged at 2 percent last month and scaled back tightening plans as weakening growth prospects abroad hurt Swedish output, of which half is sold abroad. The bank targets an inflation rate of 2 percent.

“We keep our view of unchanged policy rates during the coming year based on our view that the current situation in the world economy is not as severe as the one we had in 2008,” said Anna Raman, a senior analyst at Nykredit Bank A/S in Copenhagen, in a note. “The muted outlook for inflation gives the Riksbank room to loosen the monetary stance further if necessary.”

The krona weakened 0.2 percent to 9.1094 per euro as of 10:11 a.m. in Stockholm. It fell 0.3 percent against the dollar.

“We expect year-on-year CPI to start decelerating in the coming months as the year-on-year rises in energy prices abate and the lagged effects of previous Riksbank interest rate hikes start to diminish,” said Raman.

Sweden’s economy slowed for a second consecutive quarter in the three months through June to an annual 4.9 percent, after growing the most in the European Union at 5.7 percent last year. Industrial production in August grew at the slowest annual pace since February last year. Consumer confidence fell to its lowest level in more than two years in September.

Sweden’s central bank last month lowered its forecast for future rate rises, while signaling it may raise the benchmark this quarter. It now sees the rate averaging 2.4 percent in the third quarter next year, versus 2.9 percent previously, and 3 percent in the same quarter of 2013, the bank said.

Inflation will slow to 2.1 percent in 2012 from 3 percent this year, as deteriorating global recovery prospects hurt demand for Swedish export, the central bank estimates.

“Inflation has passed its peak this time around and the annual pace for both CPI and CPIF will slow quickly in the next few months,” said Knut Hallberg, an analyst at Swedbank AB in Stockholm, in a note before the report. Annual inflation will slow to 2.3 percent in December, he predicted.

--Editors: Jonas Bergman, Tasneem Brogger

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net.


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