Norway CPI Slows More Than Forecast, Backing September Cut

Norway’s underlying inflation slowed more than expected last month, countering recent evidence of resilience in the Nordic economy and backing the central bank’s main scenario of an interest-rate cut in September.

The core inflation rate, which excludes volatile items such as energy, fell to 4.5% last month, according to a statement by the statistics office on Wednesday. That’s the lowest level in 20 months, and below the 4.7% forecast by analysts and Norges Bank. 

A faster cooldown of inflation may help outweigh policymakers’ concerns regarding the uncertainty of the krone moves and the resilience of the energy-rich economy, which so far have kept Norway behind other wealthy nations that are pivoting to monetary easing. This weekend, a wage deal struck by Norway’s employers and the main industrial unions resulted in somewhat higher-than-expected pay increases, which also speaks in favor of higher borrowing costs for longer.

“The disinflationary process should bring a September cut back on the table – as long as the krone does not sell further off, much dependent on the Fed cutting rates in June and US CPI coming further down,” Kjetil Martinsen, chief economist at Swedbank AB in Oslo, said in a note to clients.

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The krone, the third-worst performer this year in the G-10 space of major currency jurisdictions, eased after the news, later erasing losses to trade largely unchanged at 11.5910 versus the euro at 8:44 a.m. in Oslo.

Price growth in Norway has remained stubborn at some of the highest levels in western Europe in recent months, spurred by the depreciation of the krone in the past two years. The central bank doesn’t expect to reach its 2% target on an average annual basis even by 2027. 

Electricity and fuel helped to stem price growth, according to the statistics office. Headline inflation was also lower than forecast, slowing to a six-month low of 3.9%.

“We still pencil in the first rate cut to come in September — markets priced this as slightly less than a 50% likelihood ahead of this release,” Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S said.

Norges Bank Governor Ida Wolden Bache and Deputy Governor Pal Longva are both due to speak at 10 a.m. to the central bank’s regional network.

In neighboring Denmark, consumer prices rose 0.9% in March from a year earlier, a touch faster than in the previous month, Statistics Denmark said on Wednesday.

With assistance from Joel Rinneby, Sanne Wass and Zoe Schneeweiss.

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