Inflation Is Now All of a Sudden Above the Target in Norway

(Bloomberg) -- What a difference a target change makes.

Norwegian inflation jumped more than estimated in February and is now above target after the government earlier this month lowered the level the central bank needs to aim for.

Overall consumer prices rose 2.2 percent in February from a year earlier, far above the 1.8 percent estimated by analysts, and the highest level since April last year. Underlying prices, the central bank’s preferred gauge, also accelerated, rising 1.4 percent over the year, led by rising food and furniture costs.

While the underlying rate was below the central bank’s 1.7 percent estimate, policy makers will likely view that as temporary, according to Nordea Bank senior economist Erik Bruce.

“With the strong labor market figures we now expect the coming rate path to have a full hike in September,” he said in a note. “We also believe Norges Bank will actually hike in September.”

Inflation Is Now All of a Sudden Above the Target in Norway

Headline inflation now exceeds the central bank’s newly won target level of 2 percent after the government this month reduced it from 2.5 percent, bringing it in line with other central banks such as the European Central Bank, the Federal Reserve and Sweden’s Riksbank.

That will give the central bank more leeway at its rate meeting next week to bring forward a planned rate increase this year from the current December prediction. The Norwegian krone rose 0.4 percent against the euro to 9.6146 per euro as of 9:15 a.m.

Marius Gonsholt Hov, an economist at Svenska Handelsbanken AB, said that core inflation below the central bank’s short-term estimates pulls the rate path downwards, but will be counteracted by factors such as higher international rate expectations and an improved growth outlook.

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