Still, the word inflation is on everyone’s lips. Despite the central banks’ eager interest rate hikes, prices rose 6.4 per cent in the US in January, while Norwegian inflation ended at a whopping seven per cent in the same month – far above most advance estimates.
The fresh figures thus sent the stock exchanges in a somewhat more turbulent direction last week.
– It is a special time, and we are driven by the short-term data. Now there is a great deal of uncertainty about inflation and interest rates, and we are seeing major impacts on each key figure. When the inflation figure in the US turned out to be high, there were big fluctuations, and we have to expect the same in the coming week, says chief economist Kyrre M. Knudsen at Sparebank 1 SR-Bank.
Knudsen highlights key events that will affect the market in the coming week. Among other things, the PCE deflator, which is referred to as the US central bank’s preferred inflation target, and which measures what Americans spend on goods and services. The Fed’s minutes from the interest rate meeting will also be carefully read, says Knudsen.
In the USA, the key interest rate is in the interval between 4.5 and 4.75 per cent. In a speech in connection with the latest interest rate decision said Fed chief Jerome Powell among other things, that the US economy is only in the early phase of the cooling of inflation.
– Stops at 3.25 percent
In light of the recent Norwegian inflation figures, Sparebank 1 SR-Bank and Kyrre M. Knudsen have adjusted their interest rates up. Knudsen believes the policy rate will rise by 0.25 percentage points at the interest rate meeting in March and then a further 0.25 at the interest rate meeting in June.
– Unlike several others, however, we believe that the interest rate will stop at 3.25 per cent and that it will not be raised further in September. The interest rate has risen a lot over the last year. We think inflation will decrease, especially after the summer, and we can already see that the increased interest rates are affecting households, says Knudsen.
Knudsen is not alone in raising interest rate forecasts. Both the economists at Nordea and DNB now envisage that Norges Bank will raise interest rates three times before the summer, and that the key interest rate will be 3.5 per cent in June.
– It is likely that the interest rate path will be lifted, and the probability has increased that Norges Bank will indicate not just one more interest rate hike, but two, said chief economist Kjersti Haugland at DNB to DN last week.
Expectations have also risen in the interest rate market: There, an interest rate peak of 3.5 per cent has been priced in, with a small risk for 3.75 per cent.
The invasion of Ukraine, energy crisis, sky-high inflation and interest rates not seen for decades are just some of what the governor of the central bank has had to deal with in the last 12 months. The key interest rate in Norway is now at 2.75 per cent, the highest since 2008, following a series of rate hikes by Norges Bank.
– The fear of inflation persists, that can be said with certainty. Norges Bank emphasized at the previous interest rate meeting that increased interest rates have started to have a tightening effect on the economy and that this contributes to them moving forward more gradually in setting interest rates.
More predictability
Knudsen nevertheless believes that after a year of very high inflation and many interest rate jumps, things will probably calm down a bit after the interest rate meeting in June. Despite the fact that economists disagree about the level of the interest rate peak, many of them agree that the peak will be reached in June.
– The interest rate meeting in June will be a milestone, according to our forecasts. When the interest rate peak is reached in June, for many there will be more predictability because you will get more stable interest costs, in contrast to last year when interest rates increased a lot. It will be easier to plan, says Knudsen.
He then believes that the uncertainty and negativity can finally be replaced by some relief. Most of them are in work and most of these will see that they manage to get through this, he explains.
Interest rate cut September 2024
Inflation will gradually decrease over the autumn and into the new year, and wages will probably rise more than inflation next year, Knudsen believes.
– I think the next milestone will come in September 2024. Then we think the first interest rate cut will finally come.
Knudsen describes the situation for the Norwegian economy as “a good starting point”.
– Many are in work, and there are still many vacancies. The starting point for Norwegian households is good, even with high interest rates and inflation.
At the same time, the chief economist emphasizes that the interest rate peak in June depends on there being no more surprises. (Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links, which lead directly to our pages. Copying or other forms of use of all or part of the content may only take place with written permission or as permitted by law. For further terms see here.
