Softer inflation strengthens the case for a December hold in Norway
Norway’s October inflation figures have weakened the case for another Norges Bank rate hike in December, with underlying price pressures easing and headline inflation undershooting expectations.
Further deterioration in consumer confidence adds to the case for caution, suggesting domestic demand could soften. While inflation remains above the Bank’s 2% target, today’s data offers little justification for immediate further tightening. We therefore favour an extended hold at 4.50%, with reduced expectations for additional rate increases likely to limit near-term support for the krone.
The figures follow the Norges Bank’s hawkish hold last week, when policymakers kept rates unchanged at 4.50% while retaining the option of further tightening. After raising rates in May and September, the Bank is now assessing whether its current policy stance is sufficiently restrictive.
Governor Ida Wolden Bache reiterated that inflation remains too high, highlighting persistent labour cost pressures and uncertainty surrounding energy prices. Nevertheless, with capacity utilisation slightly below normal, we see limited urgency to tighten further unless underlying inflation proves more persistent than anticipated.
Looking at the details, CPI-ATE inflation slowed to 2.7% YoY from 3.0% in September, matching both Bloomberg consensus and the Norges Bank’s September projection.
More moderate increases in food and imported goods prices contributed to the slowdown. Headline inflation, meanwhile, accelerated to 3.6% from 3.4%, primarily reflecting higher electricity costs, but still undershot consensus of 3.7% and the Bank’s 3.8% forecast. Adding to the softer picture, fourth-quarter consumer confidence deteriorated to -22.5 from -16.6, suggesting households are becoming increasingly cautious. Taken together, the figures point to easing underlying price pressures alongside a potentially weaker consumption outlook, even as energy costs keep headline inflation elevated.
As we see it, today’s releases reinforce the case for patience. Admittedly, persistent wage pressures and the possibility of renewed energy-related inflation remain important risks, particularly if higher costs feed into domestic services prices.
But with core inflation evolving in line with Norges Bank projections and consumer sentiment weakening, we struggle to see sufficient justification for further tightening at this stage. For the krone, this should temper expectations of additional interest-rate support, supporting our view that EURNOK can edge higher over the next three months.
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