Inflation eases in Norway

Norway’s core inflation, which had recently surged to a record high, has now eased in line with expectations, providing a sense of relief for the central bank. This supports the central bank’s intention to proceed with a quarter-point interest rate increase later this month.

The targeted core inflation rate, as overseen by Norges Bank, experienced a decline after four consecutive months of growth, settling at a year-on-year rate of 6.4% in July. This figure aligns with the median forecast of 10 analysts in a Bloomberg survey.

While the outcome slightly exceeded Norges Bank’s own expectation of 6.3%, it is not significant enough to prompt a deviation from the central bank’s existing plans. Strategist Dane Cekov of Nordea Bank Abp noted that this development reinforces his anticipation of a 25 basis point rate hike by the central bank in the upcoming week.

The data offers positive news for Norwegian consumers, who have managed to largely withstand rising credit costs and a decrease in purchasing power, partially due to government subsidies on electricity.

Moreover, this development is likely to simplify decision-making for the country’s monetary authorities, who are expected to adhere to their previously outlined gradual tightening trajectory. This trajectory points towards a peak interest rate of 4.25%. Additionally, the recent strengthening of the krone against the euro, rebounding from a post-pandemic low, contributes to the argument in favour of a more measured pace of rate hikes for this month and the next.

The overall headline price growth registered a figure of 5.4% year-on-year, falling short of both the median projection of 5.9% in a Bloomberg poll and the central bank’s own estimate of 6.2%. This slowdown is partly attributed to base effects, as the unusually high monthly rate of food-price increases in July of the previous year skewed the comparison.

Espen Kristiansen, division head at Statistics Norway, commented on this trend, stating, “We haven’t observed a similar price growth from June to July this year, which contributes to the lower annual rate of food-price inflation in July. The same effect is noticeable in electricity prices, which decreased more from June to July this year compared to the same period last year.”

While the Norwegian currency briefly experienced a dip following the news, it remained largely unchanged against the euro, trading at 11.2002 as of 8:05 a.m. in Oslo. Notably, the Norwegian krone has been the top performer among major currencies in the G-10 space over the past three months.