(Bloomberg) --
Swedish inflation unexpectedly slowed to its lowest level in three years, in more bad news for a central bank determined to increase interest rates despite signs of an economic slowdown and a push for monetary easing among its bigger peers.
According to Statistics Sweden, consumer prices with a constant interest rates rose an annual 1.3% in August. The reading was below economists' estimates and the Riksbank's own forecast of 1.5%. The CPIF index fell 0.4% on a monthly basis.
Key Insights
- CPIF excluding energy prices also slowed, to 1.6%.
- Tuesday's data follows the release of a Prospera survey that showed inflation expectations deteriorating further.
- At its meeting last week, the Riksbank governing board reiterated its plan to exit negative rates later this year or early next year. With the Swedish economy slowing and the ECB planning more easing, the market isn't buying it and expects the Swedish central bank to cut rates instead.
- Another piece of the puzzle will be added on Friday, when Statistics Sweden publishes its final numbers for second-quarter GDP growth. The preliminary figures showed a 0.2% contraction.
What Economists Say
- “We see that inflation continues to be markedly lower than the Riksbank's forecast. This is an important reason to why we see a rate cut around the turn of the year as the next move from the Riksbank, rather than a rate hike as signaled by the bank,” Nordea said in a note.
- Marcus Widen at SEB said: “This broad based lower than expected inflation must be seen as a major blow for the Riksbank. While we have anticipated a lower inflation during the Autumn, a negative surprise this early on and also with that size must put strain on the board.”
- Stefan Mellin at Danske Bank said the latest inflation and inflation expectation data was likely to influence the upcoming wage talks and formed the “key elements behind our bearish view on the SEK.”
Market Reaction
- The krona slid 0.75% to 10.7496 per euro as of 10:02 a.m.
Get More
- For more details, see this table
To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net
To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Nick Rigillo
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