Swedish July Inflation Slows as Krona Strength Damps Prices

Swedish inflation slowed to its lowest level in more than two years in July as the strengthening krona damped prices in the largest Nordic economy.

Consumer price growth slowed to an annual 0.7 percent from 1 percent a month earlier, Statistics Sweden said today. Inflation was seen abating to 0.8 percent, according to the median estimate in a Bloomberg survey of 12 economists. Prices fell 0.4 percent on the month. Adjusted for mortgage costs, inflation slowed to an annual 0.8 percent.

“We predict a continued very low inflation pressure” because of the strong krona and low consumer demand, said Anna Raman, a senior economist at Nykredit Bank A/S in Copenhagen. Consumer prices won’t start to accelerate until next year as the European and Swedish economies improve, she said.

The krona has strengthened more than 8 percent against the euro since the start of the year as investors buy Swedish assets as a haven from the European debt crisis. The currency gained 0.2 percent to 8.2581 per euro as of 11:06 a.m. in Stockholm.

A strong krona shouldn’t be “overdramatized” and it’s too early to say whether it’s become a haven currency, Swedish Finance Minister Anders Borg said on Aug. 9. Sweden has scope to stimulate the economy after annual growth of 2.3 percent in the second quarter exceeded estimates, he said.

Sweden’s central bank last month delayed plans for its next rate increase until the second half next year after cutting twice since December. Consumer sentiment has weakened in the Nordic country since last year as exports, which account for about half of economic output, have been hit by slowing demand from Europe where countries are cutting spending to reduce debt.

“Inflation pressures continue to be very subdued and are an important reason why we expect the Riksbank to cut the repo rate during the autumn,” said Olle Holmgren, an analyst at SEB AB in Stockholm in a client note.

Rent and mortgage costs rose in the year, while prices for electricity and home electronics fell, Statistics Sweden said today.

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

To contact the editor responsible for this story: Jonas Bergman in Stockholm at jbergman@bloomberg.net

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