According to Statistics Norway, inflation is falling and the peak of interest rates is near. At the same time, real disposable incomes of households have weakened and next year the interest burden appears to reach its highest level since the 90s.
The Norwegian economy is characterized by good activity and unemployment is low. However, the purchasing power of many of them has declined as a result of constantly rising prices. Now the era of high inflation is coming to an end.
– The factors that contributed to higher inflation have now reversed. Electricity prices have fallen, the weakening of the krona appears to have stopped, and international inflation is starting to fall. That is, the peak interest rates It's getting close, says Thomas von Brasch, head of research at Statistics Norway.
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Norwegian crown has strengthened since June, when Statistics Norway presented its previous forecast.
– We see no signs of further weakening of the exchange rate in the future. This suggests that interest rates will peak this year and that they will continue through most of 2024, says Thomas von Brasch.
Extremely high inflation is linked to international conditions: including the exchange rate crown replacement and electricity prices are an important factor in unusual price increases.
Inflation is trending downwards
Forecasts indicate that inflation is on a downward trend. Annual core inflation growth is expected to decline to around 3 percent by the end of 2024.
– When what helped raise inflation stops rising excessively, inflation will eventually calm down. Falling energy prices are currently helping to reduce inflation. Without further weakening of the krone and with a relatively rapid decline in international price growth and lower energy prices also for businesses, core inflation will eventually fall, says Thomas von Brasch.
New forecasts from Statistics Norway estimate that the increase in the CPI and CPI-JAE indicators this year will amount to 5,8%, respectively. and 6,3 percent
Record high interest burden
Currently, the basic interest rate is 4,0 percent. In less than two years, the interest rate was set from 0 to 4 percent.
Statistics Norway assumes that the interest rate will be raised again to 4,25% in September. The level of interest burden on households, measured as after-tax interest costs as part of disposable income, over the forecast period, i.e. up to and including 2026, is estimated at 8-9,5%. over the ten-year period 2010–2019, the burden was 5,5%.
– Although forecasts indicate that the peak in interest rates is near, we are not completely beyond the brink. The interest burden on households is expected to increase. We go back to the early 90s to see levels as high as we expect next year, says Thomas von Brasch.
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Source: Statistics Norway
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