Swedish inflation eases to 8.0% in July, below forecast

STOCKHOLM, Aug 12 (Reuters) – Swedish inflation fell in July as volatile energy prices eased, but with electricity costs set to rise this winter and food prices already soaring, the Riksbank is still seen hiking interest rates aggressively.

Consumer prices in Sweden, measured with a fixed interest rate, fell 0.2% in July from June and were up 8.0% from the same month last year, slowing from an annual rate of 8.5% the previous month, the statistics office (SCB) said on Friday.

Analysts had forecast an annual inflation rate of 8.2%.

“Lower prices for electricity and fuel contributed to the inflation rate falling for the first time since January,” SCB said in a statement.

However, core inflation, which strips out volatile energy prices, rose an annual 6.6%, far above the Riksbank’s forecast of 5.8%. Food prices rose by 3.2% compared to June and by 13.5% from a year ago, the highest year-on-year reading since the mid-1980s.

“Core inflation picked up and is well above the Riksbank’s forecast, supporting the view of swift tightening of monetary policy,” Nordic bank Nordea said in a note.

“We expect the Riksbank to hike rates by 0.75 percentage points in September and by 0.50 in November.”

Futures contracts on electricity prices anticipate sharp price gains during the autumn and winter as the war in Ukraine has driven up fuel costs across Europe.

The Riksbank has seen inflation soar in recent months. Prices – essentially static at the start of 2021 – have been increasing at a higher pace than any time in the last 30 years for months.

Sweden holds a general election on Sept. 11 and any new government faces a delicate balancing act of using Sweden strong public finances to soften the blow consumers face from surging food and energy prices without exacerbating inflation further.

The rapid rise in prices has also forced the Riksbank to make a policy U-turn, abandoning a dovish stance held even as many other central banks began tightening. It hiked rates by a half-percentage point to 0.75% at its most recent meeting in June and now forecasts the benchmark rate will hit 2% early next year.

The Riksbank targets 2% CPIF inflation.

Swedish CPI inflation was 0.1% on the month and 8.5% on the year.

This week, data showed that U.S. consumer prices were unchanged in July due to a sharp drop in the cost of gasoline, delivering the first notable sign of relief for Americans who have watched inflation climb over the past two years.

Euro zone inflation rose to another record high in July and its peak could still be months away, keeping pressure on the European Central Bank to opt for another big interest rate increase in September.

(Reporting by Johan Ahlander; editing by Niklas Pollard and Hugh Lawson)