Adds detail on cut in foot VAT in paragraph 4, background in paragraphs 5-8

By Simon Johnson

May 6 (Reuters) - The pace of inflation in Sweden dipped sharply in April, flash data from the statistics office showed on Wednesday, ahead of a meeting of the central bank later this week at which the key policy rate is expected to stay at 1.75%.

Swedish consumer prices, measured with a fixed interest rate (CPIF), were up 0.8% year-on-year in April, a flash estimate released by the statistics office showed on Wednesday.

Stripped of volatile energy prices, a measure the central bank is looking closely at, prices were unchanged from the same month a year earlier.

The statistics office said food prices fell 5.5% between months following the introduction of a temporary halving of VAT on food that came into effect on April 1 and that was announced last year.

Despite that, both measures of inflation came in well below analysts' and the Riksbank's forecasts.

The central bank targets 2% headline annual inflation - a level which Sweden has undershot since January.

While Sweden stands out in Europe in enjoying muted underlying cost pressure, the next move by the central bank is likely to be a hike, according to analysts, though rate-setters are not expected to be in a hurry to act.

Conflict in the Middle East has sent oil prices soaring and while Sweden is partially insulated - its energy grid is powered by hydro dams, nuclear reactors and wind - inflationary pressure is expected to rise in months ahead.

Analysts in a Reuters poll pointed to a first rate hike at the start of next year. But markets are pricing in at least one hike before the end of 2026. 0#RIBA=

The Riksbank will announce its next monetary policy decision on Thursday with analysts in a Reuters poll unanimous in seeing no change.