(Bloomberg) -- Swedish inflation unexpectedly slowed in January, adding to doubts that the central bank will be able to carry through on its plans to start unwinding its record stimulus later this year.
The underlying consumer price index, which excludes variations in mortgage costs, rose an annual 1.7 percent, slowing from 1.9 percent. That fell short of the 1.9 percent predicted by both the Riksbank and the average forecast in a survey of economists. Headline inflation slowed to 1.6 percent from 1.7 percent the previous month. The krona slid 0.6 percent to 9.97 per euro as of 10:28 a.m. in Stockholm.
“In our view this, coupled with lower GDP growth and continued uncertainty related to the housing market, will keep the Riksbank side-lined throughout 2018,” said Andreas Wallstrom, an analyst at Nordea Bank AB, in a note.
Policy makers in Stockholm last week softened their language on when they expect to start raising rates from a record low, saying the tightening could come in the second of half this year compared with signaling the “middle” of 2018 before. The bank lowered its inflation forecast amid a slowdown in service prices.
Anna Breman, chief economist at Swedbank AB, sees the slowdown in service prices as worrying and a setback for the Riksbank.
"If the service prices can’t be kept up, the Riksbank won’t be able to keep inflation above target on a sustained basis," Breman said.
There’s now an increased risk that the Riksbank will have to delay the first rate increase if service prices don’t normalize during the spring, she said. Swedbank predicts the Riksbank’s first rate increase will come in July.
Swedish rates first went below zero in February 2015, and policy makers have held the rate at minus 0.5 percent since February 2016.
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