“Expectations Survey Shows Rising Wage Expectations and Increased Employment, Despite Falling Price Growth – E24+”

Wage expectations are increasing, at the same time that several business leaders expect better profitability and increased employment in their own company.

Expectations for price growth in 12 months are falling among most people, while wage expectations are rising. It shows Norges Bank’s expectations survey for the second quarter.

Households now expect a price increase of 4.0 per cent, a full 2 ​​percentage points lower than the previous survey. Among the parties in working life, the expectation for price growth is 4.7 per cent, down 0.1 percentage point. Price growth moderated to 6.4 per cent in April.

The survey measures what economic experts, the parties in working life, business leaders and households think about the development in, among other things, wages, prices and employment. It is carried out four times a year.

Inflation expectations affect the economy in several ways, including through savings and investment decisions, companies’ pricing and wage negotiations, and are therefore very important for interest rate setting.

Increased wage growth can result in higher interest rates

The price increase has been far higher than Norges Bank’s target for interest rate setting in the wake of the pandemic and the war in Ukraine. This has resulted in a number of interest rate increases to the current level of 3.25 per cent, and notice of a further increase in June.

Recently, a historically weak krone has also made it more difficult to bring prices down.

“The fear that price growth will be stuck at an uncomfortably high level probably revolves as much about how expectations – especially a bit further ahead in time – change in a situation with high inflation”, wrote DNB Markets economist Kelly Chen in an advance review of the survey.

Households now expect wage and pension growth of 3.4 per cent in the coming year, up 0.4 percentage points from the previous quarter. At the same time, the parties in working life believe in annual wage growth of 5.3 per cent, an increase of 0.5 percentage points from the previous quarter.

Wage growth can also affect inflation. The salary framework in the main settlement between LO and NHO ended with a framework of 5.2 per cent, marginally higher than Norges Bank’s estimate.

Next year, Norges Bank has calculated that wage growth will fall somewhat again.

Handelsbanken’s chief economist Marius Hov pointed out earlier in the morning that if expectations for next year’s wage growth increase, it could push prices up more and lead to more interest rate hikes.

More profitable – increased employment

There are also more business leaders who expect increased profitability in their own company now than in the previous survey.

At the same time, the proportion who believe they will employ more people in the coming year increases by 2 percentage points to 30 per cent, while those who expect to employ fewer people fall by 3 percentage points to 23 per cent.

Business leaders expect a price increase for goods and services about
12 months of 5.8 per cent, down 0.9 percentage points from the previous quarter.

Economists’ price growth expectations, on the other hand, rise by 0.1 percentage point to 4.4 per cent.