Swedish Inflation Lags Behind Target as Unemployment Rises

Sweden’s inflation rate stayed well below the central bank’s price target for a 20th consecutive as a report showed unemployment rose more than estimated last month amid a tepid recovery in the largest Nordic economy.

Consumer prices rose an annual 0.1 percent in August, the same as the previous month, Statistics Sweden said today, which was in line with the median estimate in a Bloomberg survey. Adjusted for mortgage costs, annual inflation was 1.2 percent, exceeding the 1.1 percent forecast in the survey.

Unemployment rose to a seasonally adjusted 8 percent in August from 7.8 percent the previous month, a separate report from the statistics agency showed today. It was estimated to rise to 7.9 percent in a Bloomberg survey. The Riksbank said last week inflation in the $540 billion economy won’t reach its 2 percent target until early 2015 as a slow recovery in the euro area hampers Sweden’s labor market.

“Despite today’s figures, the trend in the labor market has been rather strong in recent months,” said Andreas Wallstroem, an analyst at Nordea Bank AB in Stockholm, in a note. “We see no reason to alter our view that unemployment has peaked -- or is close to its peak -- and that we will see a gradual improvement in the labor market.”

The krona pared some gains, and weakened 0.1 percent to 8.6723 per euro as of 10:19 a.m. in Stockholm.

Riksbank Rate

The Riksbank said Sept. 5 it won’t raise its main lending rate until late next year after keeping it unchanged at all four meetings this year to stimulate the economy and boost prices. Inflation will average 0.1 percent this year and 1.3 percent in 2014, the central bank predicts. Policy makers next meet on Oct. 23 followed by another meeting on Dec. 16.

The government of Prime Minister Fredrik Reinfeldt said last month it will spend 25 billion kronor ($3.8 billion) on new measures next year to boost the economy, which it predicts will grow 1.2 percent in 2013 and 2.5 percent in 2014. Reinfeldt has said he wants to spend most of the money on more income tax cuts to bring down unemployment, which the government predicts will rise to 8.2 percent this year from 8 percent in 2012.

“The labor market is recovering even if it’s a gradual recovery,” said Ake Gustafsson, an analyst at Swedbank AB (SWEDA) in Stockholm, before the report. “People will get slightly thicker wallets” which will “allow certain sectors to raise their margins a bit,” he said.

The Riksbank will probably raise rates three times next year to 1.75 percent starting in April, according to Swedbank.

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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