Norway Core Inflation Slowdown Backs Bets of Rate Cut This Year

Norway’s core inflation rate extended its declining streak to almost a year, likely supporting bets that the country’s central bank will cut interest rates before the end of the year.

(Bloomberg) — Norway’s core inflation rate extended its declining streak to almost a year, likely supporting bets that the country’s central bank will cut interest rates before the end of the year.

Underlying consumer-price growth, which excludes volatile items such as energy, slowed to 3.1% last month, the lowest level since April 2022, according to data from the statistics office on Thursday. Furniture, clothing and food contributed most to the slowdown, it said.

The outcome was below the 3.2% median forecast of economists surveyed by Bloomberg, while Norges Bank had projected a level of 3.3%. It may encourage speculation that policymakers will rethink their plan to keep the key rate at an almost 16-year high of 4.5% until early next year.

Governor Ida Wolden Bache and other rate-setters said last month that borrowing costs could be lowered faster than now envisaged if prospects suggest that inflation will return to the 2% target sooner than thought, or if there is a more pronounced slowdown in the economy, which has languished since the start of last year. Yet the main concern of officials recently has been high wage growth feeding business costs and krone weakness clouding the outlook for imported inflation. 

Most economists surveyed by Bloomberg late last month still expected a quarter-point cut at the December meeting, while traders in overnight swaps have scaled back their bets and now only price in a 26% chance of a reduction before the year-end.

The headline inflation rate accelerated to 3% from 2.6% while also trailing the median expectation of analysts and Norges Bank’s estimate, mainly driven by higher energy costs.

—With assistance from Joel Rinneby.