Norwegian inflation unexpectedly cools

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Norway’s annual inflation rate unexpectedly slipped in February, leaving the rate at the central bank’s 2.5 per cent target for the first time since December 2015.

Prices rose only 0.4 per cent in the month, an increase from the previous month’s 0.1 per cent decline, but less than the 0.8 per cent rise predicted by economists. Lower transport costs offset a second month of rising food prices.

The lower than expected monthly figure meant prices were 2.5 per cent higher than twelve months ago, down from 2.8 per cent annual pace in January. Economists had expected prices to increase by 2.9 per cent.

The Norges Bank maintains an inflation target of “approximately 2.5 per cent over time”, but core inflation – which strips out volatile energy prices – was significantly lower than the target, at 1.6 per cent.

Norges Bank has maintained the highest key interest rate of any major European central bank, but has warned that a sustained downturn in the inflation outlook could prompt it to cut rates.

Halfdan Grangård, economist at Handelsbanken, said:

We believe that more muted wage expectations will keep inflation lower than their forecast in the coming years. Even though the overall deviation from Norges Bank’s forecasts is large, we believe that the central bank will continue to point to their worry about price developments in the housing market and leave the interest rate path roughly unchanged at the upcoming meeting on Thursday.

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