Norway Core Inflation Hits Four-Month High, Backing Hiking

jtxh{er13zofv8{e66bw41(b_media_dl_1.png Statistics Norway, Bloomberg

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(Bloomberg) — Norway’s underlying inflation rate unexpectedly rose to its highest level in four months, adding fuel to forecasts for more interest-rate hikes from the central bank this year.

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Underlying consumer-price growth excluding energy accelerated to 3.4% in May, according to data from the statistics office on Wednesday. That topped both a 3.2% median estimate of economists surveyed by Bloomberg, as well as Norges Bank’s projection from March, which was 3.3%.

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Norwegian officials have refocused on fighting stubbornly high price growth. Last month, the central bank became the first major monetary authority in western Europe to start interest-rate hikes. The rate-setters’ concerns about the weakening credibility of their 2% inflation target have been fueled by domestic inflationary pressures predating the fallout from the Middle East war.

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Data due Thursday from the Norwegian central bank’s survey of its regional contacts will be the last input before Governor Ida Wolden Bache and her colleagues decide on further course next week. Most analysts have so far considered another hike in June as unlikely, penciling in one more 25 basis-point hike to 4.5% during the third quarter.

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“This does not automatically mean an interest-rate hike in June,” Karine Alsvik Nelson, senior economist in Norway at Svenska Handelsbanken AB, said in a note to clients, adding that data from the central bank survey will be important. “For the time being, we are therefore holding out for a hike in September.”

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Passenger air transport was among the biggest contributors to price increases, the statistics office said. Prices for information and communication equipment rose 8.3% from April to May, also driving inflation, it said.

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The headline inflation rate fell to a three-month low of 3.1% last month, helped by temporary tax cuts, the office said. The outcome was in line with the analysts’ estimate and lower than 3.3% forecast by the central bank.

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The Norwegian krone gained following the news, trading 0.1% higher at 10.9700 versus the euro at 9:19 a.m. in Oslo. Traders in overnight swaps somewhat raised their bets for a June hike, now seeing 7 basis points of a hike next week and 27 basis points of an increase by the September meeting.

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“Inflation figures are still too high, but not significantly worse than Norges Bank has assumed,” SB1 Markets AS analysts Dane Cekov and Harald Magnus Andreassen said in a note. “We do not believe Norges Bank will raise interest rates next week, but still hold out the possibility of a further rate hike after the summer.”

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Norway’s mainland economy, which excludes its oil and gas industry as well as shipping, showed some signs of softening at the start of the year. The smaller-than-expected expansion of 0.2% owed mainly to slowing car sales and lower power production.

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In neighboring Denmark, inflation also accelerated for a third consecutive month, reaching 1.9% in May. That’s up from a rate of 1.4% the previous month, driven by higher prices for restaurants and hotels, Statistics Denmark said Wednesday.

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—With assistance from Joel Rinneby, Harumi Ichikura and Sanne Wass.

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(Updates with market, analyst comments from fifth paragraph.)

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