Norway’s currency, the krone, logged a sudden surge in value after some new inflation numbers surprised analysts and traders. Higher prices, especially for food, suddenly pushed the country’s core inflation rate to 2.6 percent in July, much higher than the 2 percent level expected by analysts this year.
Norway’s central bank, Norges Bank, has a goal of keeping the inflation rate around 2.5 percent, but the rate has long been well below that, which in turn has kept interest rates low.
Prices on several key items, however, rose more than predicted, pushing the consumer price index up 2.2 percent. That also was well above the 1.7 percent that was the consensus of analysts gathered by financial news service TDN Finans.
The higher prices and inflation rate may put unexpected pressure on interest rates and push them higher, or at least remove any prospect of an interest rate cut later this year. Camilla Viland of DNB Markets said a jump in the value of the krone followed in a matter of seconds.
“Today we’re seeing strong reaction in the value of the krone,” Viland told the website for newspaper Dagens Næringsliv (DN). “The (inflation) number was higher than expected. The krone strengthened by seven to eight øre after the numbers came.”
On Friday it cost NOK 6.23 to buy one US dollar. By midday on Monday, a dollar cost NOK 6.17. One euro was trading at NOK 8.29 and a British pound cost NOK 10.40, down from NOK 10.50 before the inflation figures were released by state statistics SSB (Statistisk sentralbyrå).
Food and electricity fed CPI increase
SSB reported that the consumer price index (CPI) rose 0.7 percent from June to July, with its analysts blaming the increase mostly on higher prices for food and electricity. Food prices rose in every “sub-group” except that for ice cream, SSB said, with prices for fresh fruit and vegetables rising the most, by 5.5 percent and 4.4 percent respectively.
Despite massive protests by Norwegian farmers last spring over the conservative government’s attempts to restructure Norwegian agriculture and lower prices, the subsidy package and price support measures they nonetheless received resulted in what SSB called higher “measure prices.” Consumers have already felt it at the grocery store, with a dozen eggs at one local “discount” grocery store in Oslo rising, for example, from NOK 36.90 in March to NOK 37.90 by June and, now, NOK 39.90 (the equivalent of USD 6.40). Many grocery stores in Oslo are selling a dozen eggs for as much as NOK 49.90 (USD 8). The price of a liter (quart) of milk has also increased to around NOK 15-16 (USD 2.50).
SSB reported that clothing prices fell by 5.6 percent from June to July, because of lower sales activity during the summer holiday season. Prices on many imported goods also fell. On a year-to-year basis, those, prices for food, beverages and many other items including newspapers, books and furniture all rose. SSB said airfares rose 13.9 percent from June to July, while electricity was up 6.5 percent.