Norway Inflation Slows as Krone Strength Weighs on Import Prices

Norwegian underlying inflation slowed in December as the strength of the krone lowered import costs, making it harder for the central bank to proceed with its plans to raise interest rates this year.

Annual underlying inflation, which adjusts for taxes, fees and energy prices, slowed to 1.1 percent from 1.3 percent in November, Oslo-based Statistics Norway said today. That missed the 1.3 percent median estimate in a Bloomberg survey of 12 economists. Underlying consumer prices fell 0.1 percent from November.

Norges Bank had forecast underlying inflation of 1.33 percent in December. The bank kept its benchmark rate at 1.5 percent last month and reiterated plans to tighten policy in 2013. The bank has cut rates by 0.75 percentage point since December 2011 in part to cap gains in the krone and ease pressure on exporters.

The krone, which has emerged as a haven from Europe’s debt crisis, has risen to a record high on an import-weighted basis.

Trade Minister Trond Giske said in an interview yesterday that he was worried about the currency’s strength as it is hurting exporters, who already face falling demand from debt-ridden Europe. The government’s fiscal policy must be sufficiently tight to allow the central bank to keep rates low and avoid further krone gains, Giske said.

The currency strengthened 7.4 percent against the dollar in 2012 and 5.5 percent against the euro.

Norway’s mainland economy, which excludes oil, gas and shipping, will expand 3 percent this year, according to central bank forecasts. This compared with an economic contraction of 0.3 percent in the 17-nation region, according to European Central Bank forecasts.

Norway headline inflation was 1.4 percent in the year and 0.3 percent in the month.

Policy makers will meet on March 14 to decide on interest rates.

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