Electricity prices remain sky-high this winter, adding another stone to the burden on households. You should tighten up now, economists urge.
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– What worries me is that those with bad advice and who have it extremely tough now, will get it even tougher through the winter, says consumer economist Cecilie Tvetenstrand in Storebrand to NTB.
– Norwegians should now pay attention to the electricity bills that come in January and February. It probably makes sense for many to set aside some of the Christmas money for the expenses that come then, she says.
Not only are electricity prices record high, but fuel is expensive, and food is expected to rise further in price, she points out. As if that were not enough, Norges Bank has announced several interest rate increases – the first probably already in a couple of weeks.
Thereafter, the key policy rate will rise by 1 percentage point to 1.5 per cent by the end of next year. This means that the mortgage rate can increase to around 3 in the same period,
– There is nothing in the short-term interest rate market that indicates that Norges Bank will deviate from the plan to raise the key interest rate in December. We just have to be prepared for that to come, she says.
Equivalent to 1.5 percent interest
– Now everything comes at once. There is no doubt that it is happening for the wallet of ordinary people, says consumer economist Magne Gundersen in Sparebank 1.
If electricity prices remain at an average of two kroner per kilowatt hour through December, it will correspond to the same increased cash outlay as an interest rate increase of 1.50 percentage points, Swedbank’s chief economist Kjetil Martinsen points out to Today’s business.
– It is obvious that the increase in electricity prices has a sharp tightening effect on households, he says.
Gundersen asks you to think about the power consumption through the winter; For example, can you turn off rooms that do not need heating, reduce the room temperature a few degrees and not stand in the shower for as long as you usually do?
– We can have little effect on interest rates, but we can do something about electricity consumption, which in most Norwegian homes is used to heat water and air. Here are the things we can do that actually work, he says.
Eyes rate brake
Gundersen also maintains the possibility that Norges Bank can indirectly come to the rescue of households by postponing the interest rate increase in December. He points out that reduced purchasing power in households will have a cooling effect on the economy, in that consumption will not grow as sharply as expected.
Consumption of around 10 per cent is expected, which should seriously accelerate recovery after the pandemic in the economy. If households have to spend significantly more on covering current expenses, it is conceivable that they are more reluctant to spend their savings on consumption.
– I do not rule it out. Norges Bank looks at the overall picture, where consumption is only one part. But interest rates are being set up to cool the economy, and a sharp rise in the price of electricity is just causing cooling, he says.
Disposable real income will develop weaker than the central bank estimated in September. With electricity prices at the current level through the winter, Norges Bank can look far for almost a 10 per cent increase in consumption, Martinsen of Swedbank believes.
– I do not think the interest rate hike now in December is in danger, but the uncertainty surrounding the interest rate hike in March has increased, he says.
