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Swedish industry agrees wage rises, Riksbank to stay dovish
March 31, 2017 / 12:20 PM / 4 months ago

Swedish industry agrees wage rises, Riksbank to stay dovish

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A Stockholm City worker welds shut a manhole cover in Stockholm, before U.S. President Barack Obama's visit to Sweden, September 3, 2013.Anders Wiklund/Scanpix Sweden

STOCKHOLM (Reuters) - Industrial workers in Sweden will get pay rises of 2 percent a year for three years, employers and unions agreed on Friday, a deal that is likely to keep inflation pressure moderate and limit the chances for tighter monetary policy.

Factoring in pension increases, industry unions and employers said they had agreed rises of 6.5 percent over the next three years.

The agreement covers around half a million workers and provides a benchmark for wage-setting across the economy.

"The new three-year agreement is bad news for the Riksbank, and strengthens our view that any reversal of monetary policy is a long way off," banking group Nordea said in a note.

Nordea said it expected rates to remain at the current -0.50 percent until the second half of 2018.

The Riksbank expects to start raising rates gradually at the start of 2018, although it says inflation will not stabilise around the 2 percent target until the end of that year.

That forecast is based, among other things, on an expectation that total hourly wages will rise around 3.5 percent this year and next.

The Riksbank's measure covers overtime and other factors, but analysts were united in seeing the latest wage agreement as making it harder to reach the 2 percent inflation target.

The Riksbank has slashed rates and is buying up around 40 percent of the outstanding stock of government bonds in an effort to push up prices.

Inflation matched the 2 percent target in February for the first time in six years, but has been driven up by temporary factors, mainly energy prices.

Excluding those, underlying inflation was 1.3 percent.

Figures on Friday showed inflation in the euro zone fell to 1.5 percent in March, well below expectations.

Reporting by Daniel Dickson, editing by Anna Ringstrom, Vin Shahrestani and Toby Davis

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