Relief for the Riksbank as Swedish Inflation Nears Target

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Swedish inflation jumped to its highest level in almost five years in December, adding to speculation that the central bank may soon end its unprecedented stimulus program.

Inflation accelerated for a third month to 1.7 percent -- the highest since February 2012 -- from 1.4 percent the previous month, Statistics Sweden said Thursday. Both the central bank and analysts surveyed by Bloomberg had forecast a 1.6 percent gain. In the month, prices rose 0.5 percent.

"The higher-than-expected inflation is of course good news for the Riksbank and supports our view that the bank is done easing," Torbjorn Isaksson, chief analyst at Nordea Bank AB, wrote in a note.

SEB AB analyst Olle Holmgren said the fact that inflation was approaching the 2 percent target would make it easier for the Riksbank to end the aggressive easing seen in Sweden "over the last two-three years." According to Handelsbanken AB, the Riksbank is likely to revise up its inflation forecasts following Thursday’s figures.

Sweden’s central bank last month reduced the pace of its government bond purchases and kept its key rate unchanged at minus 0.5 percent amid signs that its unprecedented stimulus has succeeded in boosting inflation.

The krona has strengthened on rising speculation that the Riksbank is happy with the direction inflation has taken, despite the fact that it hasn’t met its 2 percent target for more than half a decade.

The Swedish currency was up nearly 0.5 percent, to 9.51 per euro as of 11:20 a.m. in Stockholm.

A surge in the krona could pose "a challenge", however, since a stronger krona "means lower inflation and trouble for the Riksbank," Isaksson said.

Adjusted for changes to mortgage costs, annual inflation accelerated to 1.9 percent last month, with prices rising 0.5 percent from November. Underlying inflation, which also beat analysts’ expectations, is closely monitored by the central bank.