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Price shock for Gjedrem

Foto: Bjørn Sigurdsøn/SCANPIX
The prices increased much more than expected in September indicate new numbers, something which may lead to an interest rate increase as early as after New Years.

Prices has almost been at a stand still in Norway the last year, something which made the Norwegian Central Bank decide to keep the interest rate at the record low 1.75 percent.

Now prices may finally be on their way up again. From September last year to September of this year the prices increased with 0.5 percent after being adjusted for duties and energy goods. Economist had in advance predicted a price growth of only 0.1 percent.

Norges Bank calculated with a price growth adjusted for duties and energy goods of 2.5 percent in two to three years time. As long as the price growth had basically stagnated, it has been difficult for Norges Bank to argue that the interest rate should be increased from the current record low level.

It may become much easier to argue for an increase if the price growth continues in the months to come, and Svein Gjedrem, the head of the Norwegian Central Bank, will most likely increase the interest rate earlier then expected. Gjedrem has on several occasions stressed that he is worried about what the effect of the low interest rate level may be in the long run.

The last couple of years the households’ debts have grown at record speed at the same time as the housing prices and the consumption increases dangerously fast. The fear is that Norway will end up in a debt crisis similar to the one that hit Norway at the beginning of the 1990s.

According to Knut Magnussen, senior economist at DnB NOR Markets, it is first off all the significant price increase of clothes and shoes that surprised economists. The prices in this group increased with more than 8 percent in September alone.

«It’s normal with a price increase after the summer sale, but this is considerably more than previously,» Magnussen said to TV 2 Nettavisen. «This may mean that the weaker currency of last year finally shows up in the consumer prices.»

Magnussen said he believes the significant price growth increases the possibility of an interest jump early next year. He continued by stating that increased inflation is positive for Norwegian economy.

«Yes, it is beneficial with somewhat higher inflation than we have had lately,» Magnussen said. «It may prevent that we end up in a situation with low interest over a longer period of time, which again contributes to an unbalance in the economy.»

In total, the prices increased with 1.1 percent from September of last year to September of this year, whereas economists had predicted an inflation of 0.9 percent.

The Norwegian Krone was somewhat strengthen against euro in the minutes after Statistics Norway has published the numbers for September.

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