– You should not focus too much on one number – E24

Bergen (E24): The central bank governor sees “clear signs” that the economy is slowing, but will not focus too much on the sharp decline in price inflation in September.

After the sudden sharp decline in price inflation in September, many economists believe that the Norwegian central bank may cancel the interest rate hike announced in December.

Our goal is to reduce price increases. Now, over the past year, we have seen several instances where inflation was higher than we expected, says Central Bank Governor Ida Wolden-Basch.

– Now the price increase is slightly lower than we expected. She stresses that forecasts are uncertain, but also that one should not place too much importance on one number, she tells E24.

Welden Bache spoke after his speech to the Bergen Chamber of Commerce on Wednesday.

Brakes on price growth

Price inflation fell sharply in September. Annual growth in consumer prices was 3.3 percent, down from 4.8 percent in August. It was also well below Norges Bank’s expectations.

We will include this number in our assessments in the run-up to the November interest rate meeting. But we will also conduct a comprehensive analysis of many other conditions affecting the outlook for the Norwegian economy, says the central bank governor.

Welden Bash confirms that Norges Bank has no new ratings now.

The Norges Bank’s assessment was that it would take some time before price inflation fell to the 2 percent target, and in particular that the underlying price increase would be able to remain elevated for some time to come.

-The economy is cooling

Walden Bache points out that the temperature of the Norwegian economy is now on the way down.

Overall, the Norwegian economy has held up well. In several rounds, we were surprised that consumption remained fairly high. But now we see clear signs that the economy is starting to calm down, as we also described in September.

– We see this in the housing market, especially since much fewer homes are being built. We hear companies reporting that lower demand from households is now dampening the outlook for trade in goods.

Wolden Bache also says there are big differences between industries. It indicates, among other things, that oil suppliers are announcing good growth forecasts.

– But the picture we have is that we have a calming down and low growth now. But we do not paint a picture of a strong setback in the Norwegian economy in the future, as we presented in September.

The battle against high inflation was the main reason that prompted the Bank of Norway to raise its key interest rate sharply in recent years.

Since fall 2021, the central bank has set the key interest rate from zero to 4.25 percent. It is also likely to rise to 4.5 percent in December before reaching the peak, Norges Bank announced at its previous interest rate meeting.

– It will take time

During his speech, Walden Bash said that inflation is still very high, and stated that the consumer price index can fluctuate a lot in the short term.

She noted that core inflation (excluding energy prices and changes in taxes), which the Norwegian central bank pays much attention to when it sets interest rates, was still at 5.7 percent in September – well above the 2 percent target.

The Bank of Norway also expects that it will take some time before inflation returns to the target level, even if inflation is on its way down.

Prices for transporting goods between countries have fallen, and the prices of many important raw materials – metals, energy, textiles and food – have fallen much lower than last year. That will ultimately contribute to lower price growth, also here at home, Welden Bash said.

– But even if there are forces now helping to curb price growth, we believe that it will take some time before inflation returns to the target level. This is because higher commodity input prices have increased costs for companies, especially when measured in Norwegian krone. Besides, wage costs in Norway are now increasing significantly, she said.