The Rising Cost of Food: Implications of Increased Interest Rates on Everyday Essentials

(North Norwegian debate): And precisely when we have to pay close to NOK 100 for a loaf of bread, we have to pay even more in interest as well. For Norges Bank cannot overcome inflation, and interest rate increases are apparently the only medicine available. Now the central bank is signaling another interest rate increase in August. Then the key interest rate ends up at four per cent, or more.

When the interest rate goes up, more of the contents of the pay packet is tied up to the mortgage. It gives most people a tighter economy, which dampens our consumption, and when demand slows down, price rises or inflation also stops. In theory.

There is only one catch to this now, and that is that all the increases in the key interest rate, from 0 to 3.75 per cent in the space of barely two years, have not had this effect. On the contrary.

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In the course of one year, food prices have increased by 13.7 per cent in this country. This is shown by the figures from Statistics Norway. Personally, most of us have probably experienced that the prices of many goods have risen much more. Sometimes there is talk of 50 percent, when it comes to certain vegetables, for example. Anyway, food prices have long since consumed this year’s salary settlement.

Higher interest rates and more expensive mortgages should make us spend less money on other goods and services. But it is difficult, if not impossible, to cut the food budget when food items have become up to three times as expensive as they were a year ago.

One thing is that you and I, ordinary people that we are, do not understand the logic in that we should be “punished” for price increases which are largely imported from abroad, and which we have minimal opportunities to influence. We have to have food anyway.

It is something else when the expert communities have started to react. Professional economists have for the most part remained calm these two years, and have probably been waiting for the effect of the interest rate hikes, too.

Read also: This is how the krone exchange rate increases without an interest rate race

But now the debate pages in the newspapers, from Finansavisen to Klassekampen, are filled with posts from economists questioning the central bank’s models, after it has been wrong for almost two years. Some fear that the monetary policy being pursued could lead us into a real economic downturn and financial crisis.

It is also claimed quite acidly that the only thing the central bank’s interest rate increases have so far led to is that the banks are making a lot of money on people’s mortgages!

The critics call for measures other than interest rate increases, and refer to the old saying: “When the only tool you have is a hammer, everything is treated like a nail”.

Many foodstuffs have become very expensive, but when I mention bread and cereals in particular, it is because the price of bread has historical significance. In earlier times, when bread became scarce or too expensive for poor people, it led to unrest and political instability. It probably won’t happen in the welfare state, but the Norwegian political landscape could change if this continues.

Most of us are, to varying degrees admittedly, able to take on financial challenges. But for the disability pensioner who has a pension of NOK 280,000 a year, the development is critical. The 2020s are going to make the gap between rich and poor even worse.

Obscene prices for, among other things, our daily bread contribute greatly to that.

2023-07-27 20:34:48


#Bread #kroner