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Inflation hits 15-year high

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10:28 CEST+02:00
Sweden's inflation rate hit 4.4 percent in July - the highest for 15 years, according to a new report from Statistics Sweden. Experts now forecast an interest rate hike in the autumn.

The last time inflation was at 4.4 percent was 15 years ago, in November 1993, according to Statistics Sweden (SCB).

Consumer prices declined by 0.1 percent from June to July following a climb of 0.5 percent from May to June.

Finance minister Anders Borg was not surprised over the record high figures.

"The figure was in line with our expectations and those of other commentators. It means on the one hand that we have a rate of inflation above the inflation goal, and on the other hand a decline in oil prices which has dampened consumer price inflation," said Borg.

Borg confirmed that state finances allow for reforms in the region of 20 billion kronor ($ 3.3 billion)-30 billion kronor. The new inflation figures do not change this situation, Borg assured.

The specific shape of the package of reforms will emerge in the autumn, when the government presents its budget. It is expected that investments will be earmarked for infrastructure, research, psychiatry and reforms to the tax system.

A Reuters survey of analyst expectations had indicated an inflation forecast of 4.2 percent for July.

"It is a little higher that our forecast and 0.1 above the Riksbank forecast issued for July," according to Cecilia Skingsley at Swedbank to news agency TT.

"Inflation continues to be worryingly high. We conclude that the Riksbank will raise interest rates in September. We doubt whether further interest rate rises will follow as we detect a rapid cooling of the Swedish economy. Inflationary pressure usually eases off in line with a downturn in the economic cycle."

The inflation figures did not come as a surprise to all market analysts however and Robert Bergkvist at SEB explained to TT that the figure was largely as he had expected.

"We had a forecast that the rate of inflation would remain at 4.3 percent. This is not a significant difference. This was no great surprise," Bergkvist explained.

Bergkvist argued that it was difficult to interpret how the figures would affect the Riksbanken board of directors.

"I feel very uncertain as to what will happen. An interest rate rise is still hanging on a very thin thread," he said.

Prices for clothing and footwear dropped by 7.2 percent in July which pulled down the consumer price index (KPI) by 0.4 percentage points. Prices for accommodation, transport, health and dental care also declined. At the same time housing costs pushed inflation up by 0.4 percentage points. Food prices continued to rise, up 0.9 percent in July.

Underlying consumer price index inflation (KPIX) was unchanged in July at 3.2 percent. In comparison with June the KPIX declined by 0.3 percent.

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