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INFLATION

Inflation hits 15-year high

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.

INFLATION

Swedish inflation climbs in July

Sweden's inflation rate rose at a higher clip in July than in the previous month, partly due to rising mortgage interest costs, although consumer prices remained flat.

Swedish inflation rose to 3.3 percent in July on a 12-month basis, up from 3.1 percent in June, official data showed Thursday.

Compared with June, July consumer prices were flat, Statistics Sweden (SCB) said in a statement.

It said higher prices reflected a 3.0-percent hike in interest costs for owner occupied housing, a 5.9-percent jump in prices for package holidays, as well as higher costs for fuel and food and non-alcoholic beverages.

These increases were offset by “seasonally normal price decreases for clothing and footwear, with prices falling seven percent, and lower prices for electricity, it said.

According to the European Union’s Harmonised Index of Consumer Prices (HIPC), inflation in Sweden was 1.6 percent in July compared with a year earlier, remaining well below the 2.5 percent inflation rate seen in the neighbouring eurozone last month.

Sweden’s central bank has raised its key interest rate seven times since July 2010, pushing it from 0.25 percent to 2.0 percent, in a bid to stabilise inflation close to its target of 2.0 percent.

The Riksbank has said it plans to continue raising rates on the back of Sweden’s strong economy, which is considered among Europe’s most robust with growth this year forecast at 4.4 percent.

However, economists have in recent days said they expect the bank will backtrack and leave rates unchanged at its next meeting in September due to growing fears of a new global financial crisis.

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