Swedish flash inflation below forecast, strengthens rate cut hopes
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FILE PHOTO: People walk through the shopping area on the pedestrian street Drottninggatan in Stockholm, Sweden, May 8, 2017. REUTERS/Ints Kalnins/ File Photo
STOCKHOLM (Reuters) -Swedish inflation came in below forecasts in May, flash figures showed on Thursday, raising hopes that the central bank will cut interest rates in the coming months as the economy slows.
Swedish headline consumer prices rose 0.1% in May from the previous month and were up 2.3% from the same month a year earlier, the statistics office (SCB) said.
Excluding volatile energy prices - a measure the Riksbank is looking closely at currently - inflation was 2.5% on the year and 0.2% on the month.
The Riksbank targets 2% headline inflation.
"Our forecast is that the Riksbank will stay on hold at 2.25% in June, but the surprisingly low inflation and sluggish GDP growth increases the probability for a rate cut," Nordea economist Torbjorn Isaksson said.
The central bank will publish its next monetary policy decision on June 18. In May it held its key rate unchanged at 2.25%, but said lower growth this year could open the door to a cut, assuming that the outlook for inflation remains benign.
The economy shrank in the first quarter as uncertainty around U.S. tariffs hit business investment and household spending. The government expects GPD growth of 1.8% this year.
Analysts in a Reuters poll had forecast headline inflation of 2.5% on an annual basis and 0.3% compared to the previous month. Ex-energy inflation was seen at 2.6% and 0.3% respectively.
Headline inflation was 2.3% in April compared to the same month a year earlier and 0.2% against March. Stripping out energy, inflation was 3.1% in April on the year and 0.5% on the month.
(Reporting by Simon Johnson; Editing by Anna Ringstrom and Christopher Cushing)
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