Norway’s underlying inflation unexpectedly accelerated to a record-high pace as food prices surged, vindicating the central bank’s half-point interest-rate increase last month and setting the stage for another hike in August.
Core inflation, the measure followed by Norges Bank, accelerated to 7.0% in June from a year earlier, compared with the 6.6% forecast by analysts in a Bloomberg survey and a central bank estimate of 6.6%. Headline inflation slowed less than forecast to 6.4%.
The data from Statistics Norway will likely boost bets that Norges Bank will be forced to extend a string of increases in borrowing costs. Norway’s inflation record comes about half a year after price gains peaked across developed economies, plagued by a weak krone, the second-worst performing currency in Group-of-10 currencies this year.
“The severe price acceleration continues to add to the pressures on Norges Bank,” Marius Gonsholt Hov, Svenska Handelsbanken AB’s chief economist for Norway, said in a note. While there will be another inflation print before the next central bank meeting in August, the figures currently point to a higher peak for the benchmark rate path, and “another double rate hike in August cannot be ruled out.”
Food and non-alcoholic drink prices jumped about 13% over the past 12 months, while transport costs rose 4.6%, the statistics office said. Such a large rise in food prices for the month of June is unusual, the agency said, with increased prices for fruit and vegetables especially pushing them up in the month. Recreation and culture prices rose 9.1%.
“In isolation, this points to faster rate increases from Norges Bank than what was signaled at the June meeting, but we believe they will stick to their plan from June and hike by 25 basis points in both August and September,” Nordea Bank Abp analyst Dane Cekov said in a note. “We also believe that the peak in core inflation is finally here and that core inflation will come down already next month due to base effects.”
The krone reversed a decline against the euro after the data, strengthening 0.45% as of 9:23 a.m. in Oslo.
“Overall, domestic inflation adds slightly to the print but it is not least imported inflation behind the surprise today which is a difference to the May print,” Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S, said. A price war between grocery retailers that restarted in June failed to yield an expected slowdown in food prices, he said.
--With assistance from Joel Rinneby and Ainhoa Goyeneche.
(Updates with comments from economists from fourth paragraph, krone in seventh)
