Economists warn Norway's shock inflation figures could delay interest rate cuts
Increased energy prices contributed to a 3.6 percent increase in the consumer price index between February 2024 and the same month this year, according to figures released by Statistics Norway on Monday.
'The price development of electricity was an important reason why the growth rate in the CPI increased from January to February. Electricity prices fell from January to February last year, while they rose in the same period this year. This pulls the twelve-month growth in the CPI up considerably,' Espen Kristiansen, section manager at Statistics Norway, said.
Food prices also rose significantly, 7.6 percent in the 12 months from February 2024.
The 12-month inflation rate increased by 0.6 percentage points between January and February. Kristiansen said the last time such a large increase was recorded was in the lead-up to record high inflation in 2023.
Norway's central bank used aggressive interest rate raises between 2021 and 2023 to try and curb inflation and prevent the country's economy from overheating.
After cuts to the key policy rate failed to materialise last year, Norges Bank said that a cut was likely to arrive in March.
However, economists have said that Monday's inflation figures could change the central bank's plans and delay any cuts until later in the year.
'These inflation figures were so much higher than expected that Norges Bank must think twice about cutting interest rates at all this year. The interest rate cut in March has definitely been cancelled,' chief economist Kjetil Olsen and macro and currency strategist Sara Midtgaard wrote in an analysis of the latest inflation figures.
Chief Economist Kjersti Haugland at DNB Markets told the business and finance site E24 that potential rate cuts were likely to be pushed back until the end of the year.
'We are changing our forecast and are now holding out the possibility that the announced March cut will not come. We are instead estimating cuts in September and December,' she said.
The bank had envisioned there being cuts to the key policy rate prior to Monday's figures being released.
The key policy rate in Norway currently stands at 4.5 percent, and Norges Bank is set to have its next interest rate meeting on March 27th.
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