Swedish headline inflation edges up in July, still tame

Headline Swedish inflation picked up pace slightly in July, data published on Wednesday showed, but overall price pressures look tame and should not prevent the central bank cutting the policy rate next week with further easing likely later in the year.

Headline consumerprices, measured with a fixed interest rate, rose 0.1 percent in July from the previous month and were up 1.7 percent from the same month last year, the statistics office (SCB) said.

The central bank targets 2 percent headline inflation.

Excluding volatile energy prices- a measure rate-setters are looking at closely – inflation eased to 2.2% from 2.3%.

Both measures were just above analysts’ forecasts but headline inflation was better than expected by the Riksbank.

“The Riksbank said in June that they expected two or three cuts,” Lars Kristian Feste, head of fixed income at Ohman Funds said. “We think there will be three to four cuts over the rest of the year.”

Sweden’s economy is struggling to gain speed after contracting slightly last year.

Household consumption is weak while manufacturing production and the construction industry are also struggling. Flash GDP figures for the second quarter showed the economy contracted 0.8% compared with the first three months of the year. The labour market is also cooling.

With inflation tame and lower rates expected in the United States and the euro zone, the Riksbank is widely expected to cut its policy rate when it announces its decision on Aug. 20, following its first cut in 8 years in May.

The Riksbank forecast July headline inflation of 1.8% versus the same month a year earlier. Excluding volatile energy prices – its forecast was 2.2%.

Analysts had forecast headline inflation of 1.6% and excluding energy 2.0%. In May, headline inflation was 1.3%.
Source: Reuters (Reporting by Simon Johnson; editing by Niklas Pollard and Toby Chopra)