Statistics Norway said on Monday that Norway's annual core inflation rose to 3.2% in April from 3.0% in March. Core inflation, which strips out changing energy prices and taxes, came in at the same average forecast given by analysts in a Reuters poll and also matched the central bank's expectation of 3.2%.
The central bank's target is 2.0%, meaning the April reading remains well above that goal. The data release at 0600 GMT coincided with the Norwegian crown trading largely unchanged against the euro at 10.81.
Last Thursday, Norges Bank raised its policy interest rate by 25 basis points to 4.25%. The bank moved earlier than many analysts had anticipated, citing the need to rein in a rebound in inflation that has been supported by rising wages and elevated energy prices.
Central bank Governor Ida Wolden Bache said on Friday that the bank would continue efforts to fight inflation but did not expect a pronounced increase in the policy rate. Norges Bank is scheduled to announce its next policy interest rate decision on June 18.
Analysts, on average, do not expect another hike at the June meeting but anticipate one later in the year.
The bank's decision to lift rates stands in contrast to the approach taken by some other major central banks, which have argued that more time and data are needed to assess the longer-term implications of the war in Iran for the economic outlook relevant to policymakers.
Key points
- Core inflation rose to 3.2% year-on-year in April, up from 3.0% in March, matching forecasts and the central bank's projection.
- Norges Bank recently raised its policy rate by 25 basis points to 4.25%, moving sooner than many analysts had expected to address resurgent inflation driven by wage growth and high energy prices.
- The crown traded largely unchanged at 10.81 against the euro following the data release; the next policy decision is set for June 18, with markets and analysts split on timing for any further hikes.
Risks and uncertainties
- Persistently higher-than-target core inflation could sustain pressure on borrowing costs, affecting interest-sensitive sectors such as real estate and corporate financing.
- Uncertainty around the broader geopolitical situation - specifically the war in Iran - introduces potential volatility that other central banks have cited as a reason to await more data; this could influence energy prices and, indirectly, inflation and market stability.
- Timing of further rate increases remains uncertain; while the central bank signalled continued efforts to reduce inflation, it did not expect a pronounced policy-rate rise in the immediate term, leaving room for changing expectations in financial markets.