Core Inflation Shows Riksbank Will Have a Hard Time Tightening

(Bloomberg) -- Inflation accelerated to target again in March, bringing relief for Swedish central bank policy makers but the core measure signaled policy makers could have a hard time raising interest rates this year as planned.

Underlying annual inflation accelerated to 2.0 percent in March from 1.7 percent in February, according to Statistics Sweden. The rate matched the Riksbank’s own forecast, but fell short of the 2.1 percent estimated by economists surveyed by Bloomberg. The krona slid 0.5 percent to 10.3496 per euro.

Danske Bank’s Michael Grahn said the “most interesting” thing about the report is that underlying inflation excluding energy stayed at 1.5 percent, which was below the Riksbank’s 1.8 percent forecast. “This means that the decline we expected in April to some extent has happened already in March,” he said. “Over the next four months there will be a lot base effects in play. Presumably this number is not what Riksbank hoped for.”

At their latest rate meeting in February, policy makers in Stockholm softened their language on coming rate increases, saying they see one in the second half of 2018, amid concern over undershooting inflation. The Riksbank is wary of any setbacks after a more than three year struggle to lift price growth, which has included bond purchases and pushing rates deep below zero.

Core Inflation Shows Riksbank Will Have a Hard Time Tightening

Read more on latest rate meeting here

The headline consumer price index rose 1.9 percent in March from a year earlier.

The krona will be a “wild card” looking ahead, said Torbjorn Isaksson, chief analyst at Nordea Bank. The weak krona will most likely boost inflation, but it will not be sufficient to justify a rate hike from the Riksbank this year, he said.

Swedbank AB’s Jorgen Kennemar said the report doesn’t change the bank’s view that the Riksbank will be forced “to postpone a first rate hike until the fourth quarter.”

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