* Headline inflation at highest pace since May 2019
* Price pressure expected to ease again
* Riksbank unlikely to change policy (Adds analyst comment)
STOCKHOLM, April 14 (Reuters) – Swedish inflation rose to its highest level for almost two years even in March, even as a renewed surge in COVID-19 infections clouded the economic outlook.
Headline consumer prices in Sweden rose 0.2 percent in March from the previous month and were up 1.9 percent from the same month last year, the statistics office (SCB) said.
The pick up, driven up by higher food and fuel prices, is good news for the central bank but it is likely to be cautious in changing its policy stance.
Sweden has avoided a hard lockdown, which has cushioned the economic effects of the pandemic, but it now has the highest infection rate in Europe, excluding San Marino.
Restrictions are likely to remain in place for some time.
The Riksbank, which targets 2% inflation, had already forecast that inflation will ease again and has left the door open for a cut in the repo rate from the current 0%.
“Underlying inflation will drop considerably during the summer and we expect the Riksbank to have little patience for downside surprises later on,” Swedbank economist Cathrine Danin said.
However, most analysts believe a cut is unlikely.
The Riksbank has argued that cutting rates before the economy emerges from the pandemic would have limited effect, while the economy is expected to start accelerating from mid-year.
There are also growing worries that with global monetary and fiscal taps fully open, inflation could catch central banks napping.
Consumer prices in the United States rose by the most in more than 8-1/2 years in March.
Most likely, central banks will be tolerant if inflation overshoots.
But the threat of inflation could at least limit the Riksbank’s appetite for a rate cut.
The Riksbank forecast headline inflation of 1.87% in March, with analysts at 1.9%.
Reporting by Simon Johnson; editing by Niklas Pollard
