Swedish krona jumps against the euro as it climbs out of deflationary spiral

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The Swedish krona jumped against the euro this morning after official data showed it had come out of deflation for the month of May.

The krona rose more than one per cent to 0.108 against the euro, and 0.56 per cent to 0.1217 against the dollar.

Prices in the country rose 0.1 per cent in May, up from a 0.2 per fall in April – beating expectations of a 0.1 per cent fall. 

It seems Swedish meatballs are setting people back further, though: prices were pushed up by food, while clothing and footwear also jumped.

The news follows yesterday's upgrade of its inflation expectations, which rose to 1.8 per cent, from 1.7 per cent.

Colin Bermingham, an economist at BNP Paribas, suggested the figures were unlikely to encourage Sweden's central bank to lower its key interest rate, which currently stands a -0.25 per cent, further. 

"This makes a rate cut ahead of the 2 July policy meeting less likely though we maintain our central view that rates will be cut by another 15bp at that meeting," he said. 
 
"Can we write [this] up as 'inflation back with a vengeance'?" asked Societe Generale's Kit Juckes.
 
"Maybe that's a bit strong, but the temptation is there because Sweden is either a country in the grips of a deflationary trap, or a country with 2.5 to three per cent real GDP growth, a six per cent GDP current account surplus and a 15 per cent fall in the real effective exchange rate in the last two years."

SEK-EUR


(Source: Bloomberg)