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An unusually strong increase in prices indicates an increase in interest rates
Inflation is rising again after moderating last month. "The numbers clearly indicate another increase in interest rates" – says the head of economics at Handelsbanken. Inflation, as measured by the Consumer Price Index (KPI), rose to 6,5 percent in March this year compared to the previous year, according to fresh SSB statistics.
- Still many groups of goods and services contribute significantly to high inflation. In addition to food prices, the prices of cars, electricity, rent and restaurant services also contribute to price increases, says SSB section head Espen Kristiansen.
Total inflation was expected to ease to 6,1 percent from 6,3 percent in the previous month.
The reason for the growth and its pace is primarily the fact that electricity prices increased to a greater extent from February to March this year compared to the previous year, notes SSB. Without support for the energy sector, price increases would be around 7,4 percent.
Even if inflation has eased slightly from close to eight percent last October, it is still well above the two percent target.
Read our next article: Food prices in Norway…
When inflation exceeds the target for an extended period of time, it indicates the need to raise interest rates so that cash spending will decrease and prices will fall. Core inflation, which excluding electricity prices, rose to 6,2 percent, in line with expectations, from 5,9 percent in February. This is what Norges Bank focuses on when setting interest rates.
"The numbers clearly point to another interest rate hike by Norges Bank in May," said Handelsbanken's head of economics, Marius Gonsholt Hov.
Interest rates and electricity
Norges Bank raised interest rates to 3,0 percent in March and said another hike was likely in May.
DNB Markets macroeconomist Oddmund Berg is not surprised by today's figures and notes that energy prices are hard to predict. He doesn't think today's data will affect Norges Bank's indication that interest rates will peak at around 3,5 percent.
“Underly price developments are in line with what Norges Bank predicted. There doesn't seem to be any reason to change your stance or make a new assessment based on today's inflation reading," he said.
Easter Price War
The price war over typical Easter products such as chocolate, eggs, lamb and oranges has significantly reduced prices in March. From February to March 2023, the prices of groceries and non-alcoholic beverages fell by 1,7 percent.
“Many retailers decided to impose their prices and before Easter a price war was decided. This explains the drop in prices,” said Kristiansen. "Despite the fall in food prices from February to March, they are still much higher than a year ago," he added.
A common feature of many of the types of products that contributed significantly to price increases in March is that they are imported goods. Norwegian crown has also weakened significantly over the past year, making it more expensive to import from abroad.
Inflation is on the rise again, as measured by both the Total Consumer Price Index (CPI) and Core Inflation (CPIJAE), which excludes electricity and taxes. Photo: SSB
“In 2022, we saw increasing inflation for imported goods, and this trend seems to continue in 2023,” said Kristiansen.
