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Higher inflation worries analysts

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11:07 CEST+02:00
Consumer prices rose 0.4 percent in May compared to April, giving Sweden an annualized inflation rate of 4.0 percent, according to Statistics Sweden.

The numbers prompted analysts, who had expected an increase of 0.3 percent for May and 3.8 percent for the year, to forecast an interest rate hike by the Riksbank later in the year.

“This level is too high, the Riksbank can't live with it. It definitely increases the likelihood of one or two rate increases from the Riksbank in July and September,” said Cecilia Skingsley, chief currency and rate analyst at Swedbank.

“The only thing that can remove the need for a rate increase in July is if inflation expectations, which we'll receive a report on next Wednesday, should suddenly drop significantly.”

Increased costs for fuel, shoes, and food were largely responsible for pushing prices up in May.

The underlying rate of inflation was 2.9 percent in May versus 2.4 percent in April, as measured by the CPIX index, which excludes changes in mortgage payments, as well as non-wage related indirect taxes and subsidies.

Market interest rates rose somewhat following the publication of the CPI statistics and the krona strengthened somewhat.

“The level probably doesn't surprise the Riksbank when considering what has happened with energy prices and much else. But it's a level which is quite worrying for the Riksbank,” said Peter Kaplan, head of strategy at Handelsbanken.

On Monday, Riksbank deputy head Barbro Wickman-Parak emphasized that the Riksbank is taking the high inflation expectations seriously.

And the high numbers for May run the risk of further raising expectations of future prices increases.

“It means quite a lot. There will be headlines that inflation is at historically high levels. If we look ahead to the autumn we'll see even higher figures, probably close to five percent,” said Kaplan.

As a result, he's betting on a rate increase in July.

“And signals about further rate increases,” he added.

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