Norway Unlikely To Raise Interest Rates On Lower Inflation Expectations

Norway Unlikely To Raise Interest Rates On Lower Inflation Expectations

The Norges Bank is unlikely to raise its key rates in the near future, as inflation fell further below the bank's target in August and is expected to rebound only slowly, Jack Allen, an economist at Capital Economics, said.

Headline inflation eased to 1.3 percent in August from 1.5 percent in July, official data revealed on September 11.

Moreover, the latest inflation was the weakest in four-and-a-half years.

The Norges Bank's preferred measure of inflation, CPI-ATE, which excludes energy prices and tax changes, also moderated in August, falling to 0.9 percent from 1.2 percent.

The slowdown in inflation was mainly due to a sharp decline in food prices, the economist observed.

“While this might prove temporary, we suspect that inflation will fall a little further in the next few months,” Allen added.

The easing trend over the past eighteen months or so has been the effect of the exchange rate on the prices of imported goods. The import price inflation in August was -0.6 percent.

Capital Economics expects expects CPI-ATE inflation to reach a low point of around 0.5 percent at the end of this year.

Then, it is likely to recover only slowly and possibly to remaining between 1.5 percent and 2.0 percent over the next few years.

“We think that the Norges Bank will leave interest rates unchanged at 0.50 percent until 2020, much later than the Bank and most other analysts expect,” Allen predicted.

SOURCE

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