Oslo August 10 2022: Norway’s inflation exceeded forecasts for a fourth straight month, hitting a new 34-year high and adding pressure on Norges Bank to deliver a bigger interest rate hike this month than it has flagged earlier.
Consumer prices rose 6.8% in July from a year earlier, the fastest pace since July 1988, according to data from Statistics Norway on Wednesday. Economists surveyed by Bloomberg expected a 6.3% increase, and Norges Bank’s own forecast was 5.1%.
The data will likely fuel speculation that Norway’s central bank may have to deliver another half-point interest rate hike from 1.25% at its interim meeting next week. This would be a more aggressive step than it communicated in June after making its biggest increase in the policy rate in two decades.
“It gives Norges Bank a clear reason to bring the key rate in Norway faster to a normal level than they indicated in June,” Nordea’s economists Kjetil Olsen and Dane Cekov said in a note to clients, adding a half-point hike “is clearly on the cards after today’s high figure.”
Markets are pricing in half-point hikes in both August and September, according to Nordea.
The krone, the best performer among the G-10 currencies since the beginning of July, strengthened on the news, trading 0.1% higher at 9.9229 versus the euro at 9:22 a.m. in Oslo.
Price growth was driven by an “unusually strong rise in food price,” Statistics Norway said. Cost of food and non-alcoholic beverages rose by 7.6% from June.
“All told, the data should push Norges Bank into implementing another double rate hike at the upcoming August meeting,” Handelsbanken economist Marius Gonsholt Hov wrote in a note. “There is a clear possibility that we will see yet another double rate hike at the following meeting in September.”
Norges Bank Governor Ida Wolden Bache indicated a willingness in June to deliver further 50 basis-point hikes in the key policy rate if needed. Still, the updated rate path “is consistent with the policy rate being hiked by 25 basis points for the remaining meetings this year and then a further increase to 3% before summer next year,” she said then.
A cooling in Norway’s housing market is a factor complicating the task for its central bank as the country’s households hold the world’s biggest debt load, ahead of Denmark and the Netherlands, according to the latest available OECD data.
Norway’s underlying inflation, the measure followed by the central bank, rose to an annual 4.5% -- the highest on record. The median estimate in the analyst poll was 3.8%, while Norges Bank had projected a pace of 3.2%.
Denmark’s inflation rate jumped to an annual 8.7% -- the highest since 1983 -- from 8.2% a month earlier, the national statistics office said on Wednesday.
The higher-than-expected inflation rate will “put a damper on private consumption with real wages currently under massive pressure,” Jes Asmussen, chief economist at Handelsbanken, said in a note. “However, Danes still have high savings, which can act as a buffer, but it’s doubtful whether consumers will decide to spend that.”
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