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Norway’s inflation continues to surprise to the downside

10 Apr 2024 8:20|Bartosz Sawicki

Price pressures in Norway are decreasing faster than anticipated. In March, the annual CPI rate plunged from 4.5 to 3.9 pct y/y. Core inflation slowed to 4.5 pct y/y, the lowest since Q3 2022. The latest figures came in significantly below expectations for the second month in a row. Norges Bank has scheduled the start of the easing cycle for Q4. Another downside surprise fuels speculation that the monetary authorities will abandon their hawkish stance sooner.

Norway’s inflation continues to surprise to the downside; Source: Conotoxia

However, Fintech Conotoxia does not expect a reduction in borrowing costs from a 16-year high of 4.5 pct until December. Consequently, Norges Bank will be the last G-10 central bank to start rate cuts. The economic activity is picking up, and prospects remain rosy. Mainland GDP is set to grow by around 0.7 pct y/y in 2024. The annual collective bargaining process resulted in higher-than-expected wage increases of 5.2 pct in frontline sectors. Real wage growth will turn positive for the first time since 2020, resulting in more robust domestic demand.

The lack of a substantial recovery in the undervalued NOK also suggests that higher interest rates will be maintained for a more extended period. In year-to-date terms, the Norwegian krone has been one of the worst-faring G-10 currencies, losing almost 5 pct against the US dollar and depreciating 3 pct against the euro. Conotoxia FX forecasts assume that the EUR/NOK exchange rate will claw back below the 11.00 mark in the remainder of the year, supported by a hawkish central bank, a benign risk environment and elevated global oil prices.

10 Apr 2024 8:20|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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