(Bloomberg) -- Norway posted the first pick-up in monthly core inflation in a year, exceeding analyst expectations and backing the central bank’s projections for no interest-rate cuts until March.
The rate of underlying consumer-price growth, which excludes volatile items such as energy, rose to 3% last month from a year earlier, after slowing since last November, according to data from the statistics office on Tuesday. The outcome was higher than the 2.8% median forecast of economists surveyed by Bloomberg, while it matched Norges Bank’s projection.
The data is likely to calm speculation about Norwegian policymakers opting to begin easing earlier than their most likely scenario of March. It leaves Thursday’s scheduled release of an expectations’ survey of Norges Bank’s regional contacts as the last key input for the next decision due to be announced Dec. 19.
“The largest upside surprise stems from domestic goods including food, and especially furniture, electronics and various household equipment,” said Danske Bank A/S’s economist Frank Jullum. “The surprising jump in these prices could of course be due to a combination of cost push and improved pricing power which could signal a turnaround in demand.”
Still, the development could also be explained by the “Black Week-effects,” Jullum said, referring to November sales that tend to follow US Thanksgiving across a number of European countries.
Even as the consumer price slowdown has recently outpaced Norges Bank’s forecasts, other data has signaled stable unemployment and better-than-projected economic output. Together with the krone still remaining weaker than estimated by the rate-setters, this provides backing for a cautious stance by Governor Ida Wolden Bache and her colleagues.
The krone, the worst performer in the G-10 space of major currencies this year, erased some earlier losses after the data, trading little changed at 11.7384 versus the euro at 8:56 a.m. in Oslo.
Traders in overnight swaps still see 54% likelihood for a quarter-point reduction in January, and 43 basis points of cuts by the end of March, in total. That compares with 38% of a cut by the January meeting that was expected after the rate decision last month.
The headline inflation rate still declined to 2.4%, the lowest level since 2020, slightly exceeding the median forecast by analysts and mainly driven by lower growth in electricity prices. The central bank had projected a level of 2.6%.
“Current inflation is aligned with Norges Bank’s projections, the Norwegian krone is weaker than anticipated, the economy is performing better than expected, and the latest government budget for next year is set to support higher growth,” Karine Alsvik, an Oslo-based economist with Svenska Handelsbanken AB, said in a note to clients. “While we still anticipate the first rate cut to come in March, the likelihood of a cut in January has been effectively ruled out.”
--With assistance from Joel Rinneby.
(Updates with analyst comments from fourth paragraph.)
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