Sweden set to loosen monetary policy again as deflation strikes

Tim Wallace
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Low oil prices have helped drag Swedish consumer prices down, surprising policymakers
Prices fell again in Sweden in April despite policymakers’ attempts to banish deflation through very loose monetary policy, official figures showed yesterday.

Consumer prices fell 0.2 per cent on the year, sliding after two months of positive inflation numbers.

Policymakers at the Riksbank held interest rates at minus 0.25 per cent at their April meeting, but did leave their options open for further rate cuts should deflation return.

“Great vigilance is needed with regard to the downside risks for inflation,” the central bank’s governor, Stefan Ingves, said in the minutes of that meeting.

Economists believe the surprise fall in prices will lead to more rate cuts.

“The renewed fall in Sweden’s headline inflation rate in April suggests that the Riksbank’s policy easing so far has not eradicated the threat that deflation becomes entrenched,” said Jessica Hinds from Capital Economics.

“Accordingly, further measures will be needed.”

Hinds predicts interest rates will be cut to minus 0.5 per cent before the end of 2015.

The price fall was driven by fuel and mortgage interest rate costs, while food, alcohol and tobacco prices rose in the year to April. In turn, underlying inflation slowed, falling to 0.7 per cent.

In anticipation of a further cut in interest rates, the dollar rose 0.17 per cent against the Swedish Krona on the day.

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