Norway Core Inflation Unexpectedly Eases to Least Since 2024

Norway’s underlying inflation surprised by slowing to its weakest pace in one-and-a-half years, reducing the pressure on policymakers to extend monetary tightening in coming months.

(Bloomberg) — Norway’s underlying inflation surprised by slowing to its weakest pace in one-and-a-half years, reducing the pressure on policymakers to extend monetary tightening in coming months. Underlying consumer-price growth rate excluding energy declined to an annual 2.7% in June, mainly driven by electronics and food costs, according to data from the statistics office on Wednesday. That trailed the 3.3% projection by Norges Bank.

The surprise deceleration vindicates the Norges Bank officials that turned to monetary tightening in May as one of the first in western Europe. Still, it also complicates their path forward as they’ve forecast further interest-rate hikes from 4.25% “at one of the forthcoming monetary policy meetings.” “I cannot remember the last time we had such a sizeable downside beat to Norges Bank’s forecast,” said Kristoffer Kjaer Lomholt, co-head of Fixed Income and FX research at Danske Bank A/S. “With Norges Bank’s very evident focus on the inflation part of the mandate (at the expense of capacity utilization)

it does clearly increase the probability that Norges Bank could do a ‘March 2025’ and not deliver on its 100% signal of a rate change in the coming quarter.” Still, Kjaer Lomholt sees a “hike and likely done”-signal in August as “the base case” given that the Norwegian policymakers have clearly indicated that they “don’t want to surprise markets in a dovish direction short-term.” Some economists had on Friday penciled in an underlying inflation rate of 2.8% in June based on calculations from the headline figures.

The median forecast in a Bloomberg survey compiled July 2 to 5 was for a rate of 3.3%. The krone, the second-best performer this year in the G-10 space of major currencies after the Australian dollar, weakened following the report, trading 0.3% lower at 11.0990 versus the euro at 8:58 a.m. in Oslo. Traders in overnight swaps now see 10 basis points of a hike by August, having priced in 13 basis points of hikes on Tuesday.

They see 29 basis points of tightening by the year-end versus 33 basis points earlier. The release was delayed from July 10 on account of technical difficulties at Statistics Norway that postponed the publication of a number of economic indicators. Headline inflation also eased to 2.7% in June from a year earlier, slowing for the first time in three months, the statistics office said on Friday.

—With assistance from Simon Lee. (Updates with analyst comments, market reaction from third paragraph.)