After Kiwi’s move, he thinks Norges Bank could again miss out on a rate hike: – It’s starting to look disgusting for them

The week isn’t full of big snacks, but two things are important on the calendar for the next few days here at home:

The brokerage industry’s new housing numbers for May will be released on Monday. And on Friday, new inflation numbers will come from Statistics Norway (SSB).

At the same time that commodity prices have mushroomed in Norway, the Norwegian krone has slumped further from already record lows recently. This puts the Bank of Norway’s interest rate setting under pressure. Now the central bank may have “one more stone to add to the burden,” according to Kjetil Olsen, chief economist at Nordea Markets.

– So far, history has shown that the Norwegian Bank has consistently missed the downside in its price growth forecasts. We have an idea they might do that this month, Olsen says, too.

In April, Norwegian consumer prices rose 6.4 percent year-on-year, with a core inflation rate of 6.3 percent. Norges Bank assumed that the latter, which adjusts for tax changes and ignores energy products, will fall back to 6.0 percent.

Nordea Markets does not think so, as it expects core inflation to rise somewhat – to 6.5 percent.

“One of the reasons for that is because we believe in very strong growth in food prices, now that Kiwi has cut its price freeze,” says Olsen.

– Really a headache

At the beginning of May, Kiwi canceled a so-called price freeze, also known as a price lock — which was a guarantee from the grocery chain against retail price increases for nearly 250 items.

The guarantee sparked a price war in which Rema 1000 and Coop also saw themselves having to keep the prices of many goods in check, despite the suppliers’ much-discussed price jump on February 1.

Olsen believes that the tougher food prices will now show in the inflation numbers.

– And if we are right, this will be another big setback for the Bank of Norway. The chief economist says it has become disgusting to them.

Olaf Chen, Head of Allocation and Global Interests at Storebrand, says the devaluation of the krone makes the inflation figures more significant this time around.

If the inflation rate is high, the Norges Bank can announce more interest rate hikes. He explains that if the inflation figure shows an increase in imported inflation, which works with a six-month time lag, it would be an indication that Norwegian inflation will also remain high in the future.

Chen says the interest rate is the most important weapon for dealing with a weak krone.

– The crown is really a headache. He adds that if nothing happens with the krone, there are likely to be three interest rate increases.

Are home prices finally stagnating?

Olsen agrees and, like most other economists, expects the Bank of Norway to raise its key interest rate from the current level of 3.25 percent at its next rate meeting on June 22. From there, he believes in new interest rate hikes in August and September.

– Then we think it’s finally going to start to work out, he says of the new daily lives of families – and the Norwegian housing market.

Eiendom Norge presents its report for May on Monday at 11.00. So far this year, the central bank’s treatment of hard interest rates has not been able to bring down house prices, which rose in January, February, March and April. The fall price crash is now over and broker managers are seeing signs of another price hike in May which could lead to an “all time high”,

– The housing market has remained surprisingly strong this year, and we’re quite confident that the relaxation of mortgage rules on January 1 has contributed to that. People have been allowed to borrow more from the bank, and we hear about an extra 20 percent, and that raises rates. But for every quarter the interest rate increases, homebuyers must undergo stress tests at a pain threshold. We think that’s starting to bite now, says Olsen.

Five percent price drop

He does not dare to forecast for individual months, but he predicts a drop of up to five percent in housing prices this fall.

Otherwise, investors on US stock exchanges will spend the first trading days of the week absorbing Friday’s surprise labor market report from the US, Chen believes.

339,000 new non-farm jobs were created in the US last month, showing numbers often called the “hottest month” – well above forecasts for 195,000 new jobs. At the same time, unemployment rose more than expected.

At the same time, President Joe Biden has signed a new law that raises the US debt ceiling, thus preventing what would have been the country’s first national debt default on June 5. Chen asserts that the market has sought to raise the debt ceiling.

– At the same time, I think the market will react positively to the week, when the so-called “tail risk” for this to happen disappears, Chen says.