Norway Inflation Surge Casts Doubt Over More Interest Rate Cutsby
Norway inflation unexpectedly surged in July, damping speculation the central bank will be able to cut interest rates again to support the economy.
Underlying prices rose an annual 3.7 percent in July, the highest rate since at least 2000, according to a statement from Statistics Norway. That beat a 3.1 percent estimate in a Bloomberg survey of 14 economists. Underlying CPI rose 0.7 percent in the month.
The krone strengthened 0.9 percent versus the euro to 9.2644 as of 10:42 a.m. in Oslo, making it the biggest gainer against the European currency.
“There are good reasons to believe the announced rate cut in September is off the table,” Marius Gonsholt Hov, an economist at Svenska Handelsbanken AB in Oslo, said in a note. “Even if the figures are volatile during the summer months, it will take a lot to correct this error in August.”
The acceleration in inflation comes after a slew of data that points to an improvement in the Norwegian economy. Production levels have bottomed out and an increase in unemployment has stalled, signaling the worst may be over.
Nordea Bank also on Wednesday changed its forecast for further easing and said the benchmark policy rate has bottomed after economic performance over the summer was markedly stronger than anticipated.
At their latest rate meeting in June, Norwegian policy makers left their key rate at 0.5 percent and raised their outlook away from a potential zero rate, arguing that the rebound in crude would stimulate growth, consumption and investments. At the same time, they indicated that they would probably lower rates at least once more.