By Wojciech Moskwa
OSLO, Nov 11 (Reuters) - Inflation fears are fading across Scandinavia as price pressures ease, raising the spectre of more rate cuts in Sweden and Norway as the two countries seek to shore up their economies against the global crisis.
Data on Tuesday showed annual inflation in Sweden slowed to 4.0 percent in October from 4.4 percent in September, following a dip in Denmark's EU-harmonised consumer price index to 3.8 percent last month from 4.5 percent in September.
Norway was more worrisome with headline and core inflation both up last month, to 5.5 percent and 3.3 percent respectively, boosted by food and energy prices as well as a weakening crown.
But a measure that strips out volatile energy prices showed underlying Norwegian inflation is also slowing -- a trend analysts said gave its central bank room to loosen monetary policy further after cutting rates a full percentage point in two stages in October to a current 4.75 percent. Sweden's Riksbank is also likely to look at easier rates in the face of the credit crunch and rising global recession risks.
"Overall, this is a little better than expected," Swedbank economist Knut Hallberg said of Sweden's inflation data.
"It gives a reassuring picture of how inflation will develop and allows the Riksbank to place more weight on the business cycle instead of inflation and, as a consequence, gives it room to cut rates."
The policy rate in Sweden, a European Union member but euro outsider, now stands at 3.75 percent after two October cuts to cushion the blow of global market turmoil.
Denmark, which uses monetary policy to keep its currency in a tight band against the euro, last week cut rates half a point to 5 percent in lockstep with the European Central Bank. This followed a pair of rare unilateral rises to support the crown.
UNWINDING PAST TIGHTENING
RBS economist Peter Kaplan said Riksbank has room for a 50 basis point rate cut in December, as Sweden -- along with Norway -- rushes to unwind a string of rate hikes from the past few years when buoyant Nordic economies were at risk of overheating.
Inflation has roughly doubled across Scandinavia in the past year, with Swedish price growth peaking at 4.4 percent in September. A year ago inflation amounted to 2.7 percent.
Danish CPI peaked at 4.8 percent in August and was at 1.8 percent in October 2007, while Norway's core CPI last month hit its highest level since 2001, up from 1.4 percent a year ago.
But worries about inflation have been overtaken by economic fears with global woes hitting the region's open and export-led economies, sapping spending and threatening to end an era of low unemployment -- the hallmark of the Scandinavian welfare model.
Norway's central bank said it expects to cut its main rate by a further 25 basis points by next March, a forecast seen as conservative by some market analysts.
"Inflation will probably decrease the coming year, despite the current weak currency," Nordea Markets economist Erik Bruce said, adding that the forces pulling up prices -- such as food and energy -- will probably not be a factor in 2009.
Inflation is also seen on the decline in Denmark, which faces a consumer spending slump after its housing bubble burst.
"Falling inflation alone will not be enough to secure growth in the Danish economy," said Jes Asmussen, chief economist at Handelsbanken in Copenhagen.
"It looks as if consumers are correcting after a period of exaggerated consumption, which will mean a rise in saving rather than increased spending. This tendency is emphasized by the massive losses in equity that households are experiencing from both housing and shares," he added.
Lithuania, Latvia and Estonia face an even direr economic picture, with double-digit inflation forcing the Baltic states to delay their euro adoption plans. (With reporting by Nordic and Baltic bureaux, editing by Andy Bruce)