Swedish Consumer Prices Decline Less Than Estimated in May

Sweden’s consumer prices declined less than estimated in May, easing pressure on the central bank to cut its main lending rate next month.

Consumer prices fell an annual 0.2 percent after dropping 0.5 percent the previous month, Statistics Sweden said today. Prices were seen falling 0.3 percent, according to a Bloomberg survey of 12 economists. Prices rose 0.2 percent in the month. Adjusted for mortgage costs, inflation accelerated to an annual 0.7 percent from 0.5 percent and was 0.2 percent in the month.

“We expect the Riksbank to stay on hold in July, but the rate decision is uncertain” because inflation is “still a tad lower than the Riksbank’s view while unemployment is higher,” Nordea Bank AB economist Torbjoern Isaksson said in a note.

Sweden’s central bank at its last meeting in April delayed plans for its next interest rate increase until late next year after cutting its inflation forecasts. It kept its main lending rate at 1 percent for a second meeting as concerns about record-high household debt limited the scope for more cuts.

“In the short term we’re seeing a tendency that the economy will weaken and along with that lower inflation,” Deputy Governor Per Jansson, one of six Riksbank board members, said on June 7. At the same time, “the risks surrounding household debt and the housing market are increasing,” he said.

Easing Pressure

The Riksbank in April said Swedish consumer prices won’t reach target until December next year. It will announce its next rate decision along with new economic forecasts on July 3.

“Today’s numbers ease the pressure a little on the Riksbank to cut its key policy interest rate,” Anna Raman, an analyst at Nykredit Bank A/S in Copenhagen, wrote in a note to clients.

Sweden’s unemployment matched the highest level in more than 2 1/2 years in April as companies cut jobs to cope with falling demand from debt-laden Europe. The country’s exports, which account for about half its output, fell an annual 5.5 percent in the first quarter as the krona made some exports more expensive.

Sweden’s central bank in April predicted Swedish consumer prices will rise 0.1 percent this year and 1.4 percent in 2014 as unemployment peaks at 8.2 percent this year.

“We continue to see rather pronounced downside risk to the Riksbank inflation forecast,” Mikael Nilsson Rosell, an analyst at Barclays Plc in London, said in a client note. “Low spot inflation and the benign near-term inflation outlook might start to get entrenched into long-term inflation expectations.”

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