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Norway Inflation Unexpectedly Holds as Krone Gains Persists

Norwegian underlying inflation was unchanged in October as a strong krone weighed on imported prices, putting pressure on the central bank to keep interest rates low.

Annual underlying inflation, which adjusts for taxes, fees and energy prices, held at 1.1 percent in October, Oslo-based Statistics Norway said today. The rate was estimated to rise to 1.2 percent, according to a Bloomberg survey of nine economists. Underlying consumer prices were unchanged from September.

Policy makers have left their main rate unchanged at 1.5 percent since March after cutting it twice since December. Last week Norges Bank Governor Oeystein Olsen postponed the bank’s next rate rise into 2013, citing low inflation even as record offshore investments helped push registered unemployment to lowest in almost four years. The bank signaled it will start raising rates between March and August.

“We think the low inflation once again will be put forward as one of the reasons to postpone the first interest rate hike,” Bjoern Roger Wilhelmsen, chief currency strategist at Swedbank First Securities said by phone. Wilhelmsen expects the bank to start tightening policy in the fourth quarter next year.

The strong krone, which has emerged as a haven from Europe’s debt crisis, has helped keep inflation below the central bank’s 2.5 percent target since mid-2009. The currency rose to a nine-year high against the euro in August.

The krone was little changed at 7.2966 as of 10:52 a.m. in Oslo, near the highest level since Sept. 5. Against the dollar the krone traded 0.1 percent weaker at 5.7261.

Norway’s mainland economy, which excludes oil, gas and shipping, will expand 3.75 percent this year, according to central bank forecasts. Economic developments “give reason to believe that inflation will gradually pick up,” Olsen said in the bank’s Oct. 31 monetary policy report.

Headline inflation was 1.1 percent in the year and 0.5 percent in the month.

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