Norwegian inflation Data Presents Mixed signals Ahead of Interest Rate Decision
recent inflation figures in Norway are creating uncertainty around potential interest rate cuts, despite an initial reading aligning with the central bank’s expectations. Overall inflation rose from 3.3% to 3.5%, while core inflation remained steady at 3.1%. This initially appeared positive for those anticipating rate reductions, according to Kyrre Knudsen, chief economist at Sparebank 1 Southern Norway.
However, a complicating factor has emerged: the implementation of a maximum price reduction for kindergartens, effective August 1st. Statistics Norway calculates that, adjusted for this change, inflation rises to 3.9%.This adjustment is causing concern among analysts.Sara Midtgaard, currency strategist at Nordea, notes the adjusted core inflation figure is higher than Norway’s Bank anticipated, making a September interest rate cut “much more uncertain.”
The kindergarten price cap was lowered from NOK 2000 to NOK 1200 per month in most municipalities. While Knudsen still believes norway’s Bank will likely cut rates next week,he acknowledges this factor reduces the probability.
statistics Norway’s Kristiansen explains that the kindergarten price reduction doesn’t significantly impact the year-over-year CPI growth as a similar price decrease occurred simultaneously occurring last year.
Despite this, Karine Alson Nelson, a macroeconomist at a trading bank, points out that Norway’s Bank did not factor in this kindergarten price reduction when formulating its previous interest rate forecasts. Adjusting for the kindergarten prices reveals a core price growth of 3.5%, leading Nelson to express “strong doubt” about cuts in September, and suggesting the possibility of only one rate cut for the entire year.
Norway’s Bank aims for long-term price growth close to 2%, a target that remains distant.The central bank balances this goal with maintaining employment and stable economic development.A positive development within the data is a 2% decrease in food prices from July to August, a common seasonal trend. Bendik Solum Whist of Statistics Norway notes this aligns with trends in other Nordic countries, indicating an international influence on food price fluctuations. Factors impacting food inflation include rising prices for commodities like coffee, cocoa, and chocolate, alongside price competition among grocery chains, often manifested through school-start promotions. The decline in food prices contributed to a reduction in the twelve-month growth to 4.7%.
Norway’s Bank will announce its interest rate decision for September next Thursday.
