(Bloomberg) -- Sweden’s core inflation rate declined somewhat less than expected in a reading that is unlikely to sway markets that are betting on the central bank to lower borrowing costs next week.
A measure of annual price increases that strips out energy fell to 2.2% in July, according to a release published Wednesday by Statistics Sweden. While that is lower than the 2.3% recorded in the previous month, it exceeded economists’ 2.1% estimate in a Bloomberg survey.
The reading comes just days ahead of an Aug. 20 announcement where most forecasters have penciled in that Riksbank Governor Erik Thedeen and his deputies will cut their benchmark rate by a quarter point, to 3.5%.
While the central bank has expressed a preference for gradual easing and said it expects to take borrowing costs two or three quarter points lower by year-end, it is under pressure to do more than its current guidance implies. Calls for faster cuts have increased as domestic demand remains weak following an initial cut in May, and the CPIF rate of inflation that the Riksbank targets has been below 2% for two consecutive months. In July, that measure stood at 1.7%.
Svenska Handelsbanken AB’s chief strategist Claes Mahlen said the numbers released Wednesday won’t be enough to shift expectations for a 25 basis-point cut by the Riksbank, and the bank’s head of forecasting, Johan Lof, said inflation remains in check.
“Today’s CPI report means clear inflation skies for the Riksbank ahead of its policy announcement” on Tuesday, Lof said. “In this fair weather, we expect Governor Erik Thedeen and the Riksbank board to stay the course and sail on toward the three cuts they have signaled for the remainder of 2024.”
The Riksbank started easing in May, and additional moves are set to provide much-needed fuel to a sluggish Swedish economy. While optimism about a recovery has increased this year, recent data has shown rising unemployment and a preliminary estimate indicated that output contracted in the second quarter. The signs of a weaker labor market could convince the Riksbank to reduce borrowing costs more rapidly than their current plans imply, according to analysts at Swedbank AB.
“Risks are currently tilted toward rate cuts at all four remaining meetings this year, as opposed to the three rate cuts in both our forecast and the Riksbank’s own rate path,” Carl Nilsson and Jesper Hansson said in a note.
--With assistance from Joel Rinneby.
(Updates with analyst comments from fifth paragraph)
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