– Most people have to settle for worse times as a result of poorer purchasing power, says manager Olav Chen in Storebrand to TV 2.
Norwegians have been accustomed to falling interest rates, low inflation and cheap import prices for almost 30 years, but these trends will end, Chen believes.
He points to the corona pandemic as the main reason for the rise in prices.
– PRICE GROWTH: Manager Olav Chen in Storebrand asks Norwegians to settle for high prices in the time to come. Photo: Magnus Nøkland / TV 2
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– During the pandemic, the economy was strongly stimulated in the form of tax and interest rate cuts. This has led to higher inflation, lower unemployment and higher wage growth.
Chen believes we are seeing the consequences of central banks trying to stabilize inflation by raising interest rates.
– Interest rates will rise
In his last annual speech in February, the then central bank governor, Øystein Olsen, warned that interest rates would rise if inflation rose.
– If broad groups, both price setters and wage earners, demand compensation for high electricity prices, inflation can accelerate. If this happens, it is the central bank’s task to tighten monetary policy, in Olsen.
Despite rising commodity prices as a result of the war, Norwegians should be determined that the historically low interest rates will rise, says Chen.
– Norges Bank has already started the increase to one percentage point already at the end of March, and it will be higher, says Chen.
Already in December, the central bank announced that the interest rate is likely to rise further to 0.75 per cent in March, and then gradually to a peak of 1.75 percent in 2024.
A household with five million kroner in debt will receive 50,000 kroner more in annual interest costs if the interest rate rises by one percentage point, according to Chen.
“If you have high debt, one percentage point will make a big dent in your disposable income, which has already been weakened by higher food and fuel prices as a result of the war,” says Chen.
– Must tighten spending
Chief economist Kjersti Haugland in DNB Markets, estimates that the interest rate will rise by as much as 2 percentage points already in the summer of 2023. Which will be the highest in 11 years.
But to prevent interest rates from rising more than Norges Bank has already announced, the government must limit spending, Haugland believes
– We should end all support schemes now that everyday life is back. We should not have as extreme schemes as we have had during the pandemic, says Haugland to TV 2.
– TIGHTEN: Chief economist Kjersti Haugland in DNB Markets, believes the government must tighten spending after the pandemic. Photo: ijord, Thomas Winje
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She says that the schemes have added purchasing power to society, which contributes to increasing inflationary pressures.
– This gives Norges Bank a need to raise interest rates. So holding back money and prioritizing good causes is important, says Haugland.
Haugland nevertheless believes that raising interest rates is not just bad news.
– The fact that interest rates are rising is also a signal that the Norwegian economy is doing well, considering that many people get jobs and stay in work, Haugland says.
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