Norwegian economists were caught off guard Tuesday morning when Statistics Norway (SSB) released unexpectedly high inflation figures.
“Today’s figures were significantly higher than anyone had anticipated. For Norges Bank, the fact that inflation appears to be rising rather than falling is certainly concerning,” wrote Chief Economist Kjetil Olsen in a new analysis.
The bank noted that because the increase isn’t attributable to isolated factors, it’s unlikely to be a temporary peak.
No Rate Cuts – Perhaps a Hike
As prices climb, the labor market remains resilient. Registered unemployment remains stable at 2.1 percent, lower than the central bank’s own projections.
“From the real economy, there is therefore no good reason to think about rate cuts at this point. Unemployment has fallen slightly over the past two months,” Olsen wrote in his analysis.
Kjetil Olsen Photo: Nordea
Even as a stronger krone provides Norges Bank with some breathing room, experts now observe a real possibility of the next rate move being upward. Nordea draws parallels to Australia, which recently had to raise rates again after a period of cuts.
“the interest rate path points upwards, and a technically sound interest rate path now indicates a real probability of a rate hike before the summer,” Olsen wrote.
Is a Rate Increase on the Horizon?
According to Olsen, Norges Bank is likely to begin a tough discussion. Initially, he believes a rate cut will simply be postponed.
“But if unemployment continues to fall, the discussion within the committee will begin: Should rates perhaps be raised to bring inflation down?”
“They will desire to observe developments over a few months, and have the wage settlement behind them, before doing anything drastic. But one thing is certain: a possible rate cut is now a question for 2027 – if it happens at all.”
The Krone Has Strengthened Significantly
Following the release of SSB’s figures Tuesday morning, the Norwegian krone has strengthened considerably against other currencies.
- Dollar: From 9.59 to 9.51 kroner
- Euro: From 11.42 to 11.33 kroner
- Swedish kroner: 107.4 to 106.6 kroner
- British pound: From 13.12 to 13.01 kroner
The reduced chance of rate cuts is strengthening the attractiveness of the Norwegian krone.
