Sweden Averts Deflation in Sign Economy Weathers Euro Recession

Sweden escaped deflation and the jobless rate was unchanged in January, showing the biggest Nordic economy may be weathering the demand slump in Europe, its main trade partner.

Consumer prices were unchanged in the year after falling 0.1 percent the previous month, Statistics Sweden said today. Economists estimated prices to remain unchanged, according to a Bloomberg survey with 11 responses. Prices fell 0.8 percent on the month. Adjusted for mortgage costs, the inflation rate was unchanged at an annual 1 percent and prices fell 0.7 percent on the month compared with an 0.3 percent increase in the prior period.

Sweden’s $500 billion economy is vulnerable to the debt crisis in Europe where countries are cutting spending to reduce debt. Its exports, which account for about half of its output, are primarily sold in Europe.

The unemployment rate, adjusted for seasonal variations, was unchanged at 8 percent last month. Starting in January, Statistics Sweden has changed the way it calculates the jobless rate to improve accuracy and assure compatibility over time, it said on Feb. 14.

Sweden’s central bank last week said it will keep its main lending rate at 1 percent for about a year to speed up inflation subdued by weak demand for the country’s sales abroad.

The Riksbank, after cutting rates in December for a fourth time in a year, predicted underlying inflation will accelerate gradually to “close to” 2 percent by the middle of next year.

Rate Forecast

“We still expect the Riksbank to cut rates to 0.75 percent in April as unemployment continues rise and the krona continues to strengthen,” Elisabet Kopelman, an analyst at SEB AB in Stockholm, said before the data was published. “It’s a very close call given the Riksbank’s prediction that it will keep rates unchanged.”

Sweden’s economy will grow 1.2 percent this year after an 0.9 percent expansion in 2012, according to the central bank’s forecast.

“The Swedish economy is still being affected by the economic crisis in the euro area,” the bank said in a statement. “Unemployment is expected to rise slightly over the year” as “resource utilization in the economy is now expected to be lower than normal.”

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 at jbergman@bloomberg.net

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