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Swedish Inflation Misses Estimates as Economy Loses Momentum

Swedish inflation unexpectedly held last month amid falling interest rates as an expansion in the largest Nordic economy shows signs of stalling.

Consumer prices rose an annual 0.4 percent, the same pace as in the previous month, Stockholm-based Statistics Sweden said today. Inflation was estimated at 0.5 percent in a Bloomberg survey of 13 economists. Prices fell a monthly 0.1 percent. Adjusted for mortgage costs, prices rose an annual 1.1 percent and 0.1 percent in the month.

“The inflation rate is low and will stay low for a long time,” said Per Sellden, an analyst at Swedbank AB in Stockholm. The central bank will cut its main lending rate to 1 percent next month because of “weak growth and a clearly weakening labor market,” he said.

The Riksbank last month signaled it was prepared to cut the repo rate again in December to support growth as Europe’s debt crisis hurts exports and pushes up unemployment. The bank has cut rates three times since December while warning over imbalances as low borrowing costs spur debt growth.

The krona slid less than 0.1 percent to 8.5927 per euro as of 11:17 a.m. in Stockholm. Swedish two-year yields fell one basis point to 0.65 percent.

Too Optimistic

It last month predicted inflation won’t return to its target until March 2014 as growth in the $500 billion economy slows to 0.9 percent this year from 3.9 percent in 2011. The bank estimates unemployment will rise to 7.9 percent, on average, next year from 7.7 percent in 2012.

“As we do believe that the Riksbank still is a bit too optimistic on the labor market, lowered inflation forecasts should facilitate a stance for more policy easing,” said Anders Brunstedt, an economist at Svenska Handelsbanken AB, in a note. “We expect the Riksbank to move ahead with a repo rate cut in December to 1 percent.”

Sweden sells about half of its output abroad, of which about 70 percent goes to Europe. Industrial orders have fallen for 12 consecutive months on an annual basis, sending manufacturing confidence to a three-year low last month. Consumer confidence has slid to the lowest since February amid job cuts by companies such as truck maker Volvo AB and Ericsson AB, the world’s largest maker of mobile phone networks.

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