World Economy

Sweden Core Inflation Highest Since 2010

Riksbank is under pressure to tighten its ultra-loose monetary policy.Riksbank is under pressure to tighten its ultra-loose monetary policy.

Underlying inflation topped the Swedish central bank’s target in July for the first time since 2010, putting the central Riksbank under pressure to tighten its ultra-loose monetary policy.

Negative rates and a hefty bond-buying programmer are looking increasingly at odds with an economy that expanded 4% in the April-June period on an annual basis, Reuters reported.

After flirting with a Japan-style downward price-spiral, inflation is back on track with the July core reading at 2.4%, the highest since February 2010. It was last above the 2% target in December of that year.

The central bank has forecast it will start hiking rates from the current -0.50% in mid-2018 and, having missed its inflation target for years, it will be cautious.

Most analysts see inflation falling back later this year as the effects of a stronger crown and a lower oil price begin to weigh. July’s figures were also affected by temporary factors, including a change in the calculation method for package holidays.

But Sweden’s economy is growing at one of the fastest rates in the European Union and the developed world. Earlier in August, the National Institute of Economic Research increased its 2017 growth projections to 3%.

This compares with Organization for Economic Cooperation and Development projections for 2.1% in the United States and 1.8% for the eurozone.

Speaking at the last rate-setting meeting, Ricksbank Governor Stefan Ingves said he did not want to get too far ahead of the ECB. That would boost the crown, undoing years of hard work on inflation by pushing down import prices. “It is not a scenario that we are talking about,” Ingves said.

“The Riksbank can’t relax yet,” said Torbjorn Isaksson, economist at Nordea. “It needs to maintain a relatively soft tone so that the crown does not strengthen too fast.”

Overall Swedish consumer prices rose 0.5% in July from the previous month and were up 2.2% from the same month last year, the statistics office said on Tuesday. Underlying inflation, which strips out interest rate effects, was 0.6% on the month and 2.4% on the year.

The Riksbank forecast headline inflation of 1.64% and underlying inflation of 1.79%. The Riksbank publishes its next rate decision on September 7.

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