Summary: Norway recorded an unexpected uptick in annual core inflation in May, with Statistics Norway reporting a rate of 3.4% year-on-year, up from 3.2% in April and above market forecasts. The result came as the central bank has already tightened policy and the Norwegian crown strengthened against the euro.
Data released on June 10 from Statistics Norway showed that core inflation - which excludes fluctuations in energy prices and taxes - rose to 3.4% year-on-year in May. This figure exceeded the 3.2% median forecast in a Reuters poll of analysts and was marginally above Norges Bank's own projection of 3.3%.
Financial market moves followed the data. By 06:09 GMT the Norwegian crown had firmed to 10.96 per euro, from 11.00 immediately before the release.
Norges Bank raised its policy interest rate by 25 basis points last month to 4.25%. That move came earlier than many analysts had anticipated and was intended to restrain a rebound in inflation that the central bank has linked to rising wages and persistently high energy prices. The bank's inflation target is 2% and it will announce its next policy decision on June 18.
The broader, often more volatile headline inflation rate, which includes changes in energy costs and taxes, eased to 3.1% in May from 3.4% in April. That headline reading matched the consensus in the Reuters poll.
Context and implications
The unexpected rise in core inflation reinforces expectations that Norway's monetary authorities could consider further tightening this year if underlying inflation pressures persist. Norges Bank has already signaled a willingness to move pre-emptively, citing wage increases and elevated energy prices as important drivers of recent inflation dynamics.
At the same time, other major central banks have adopted a more cautious posture, citing the need for additional time and data to assess the broader effects of geopolitical developments - including the war in Iran - on the medium-term outlook relevant to policy decisions.
Market reaction
Short-term currency markets responded to the SSB release with a modest strengthening of the krone versus the euro. The interplay between inflation readings, wage growth, energy prices and central bank policy will continue to shape rates and exchange-rate expectations ahead of Norges Bank's June 18 decision.