OSLO Feb 10 Inflation in Norway was much lower
than expected in January, according to data on Friday that
caused the crown to weaken against the euro on increased
expectations that the central bank may need to cut interest
The key number, core inflation year-on-year - adjusted for
taxes and energy prices - was 2.1 percent in January, against
expectations for 2.6 percent in a Reuters poll, and down from
2.5 percent in December.
Norway's central bank, Norges Bank, which had forecast a
reading of 2.9 percent, has a long-term inflation target of 2.5
percent. Other measures of Norwegian inflation were also weaker
"This makes it very difficult for the central bank," said
brokerage DNB Markets in a note. "With low inflation
but still strong growth in house prices, this increases the
danger for financial imbalances.
"The probability that Norges Bank will have to cut rates in
March has definitely increased after today's numbers."
The key policy rate was kept steady at 0.5 percent at the
last rate meeting on Dec. 15, when the bank repeated that it
expected it to stay at this level "in the period ahead". The
next rate meeting is on March 16.
The Norwegian crown dropped against the euro immediately on
the news. It was trading at 8.9080 at 0723 GMT against 8.8870
just before the data was published.
"The deviation from Norges Bank's forecast is now starting
to become very large. Normally, such a discrepancy would pull
down the interest rate path significantly, but it is difficult
to say now, because they (the bank) are very concerned about
housing prices," said Halfdan Grangaard, a senior economist at
"So far we have not changed our expectation of unchanged
rates, but there is a downside risk, and it is clearly been
reinforced by today's figures."
The fall in core inflation was due mostly to lower prices
for clothes and furniture, Statistics Norway said in a
Others disagreed. "We don't think it brings Norges Bank back
in a mode for cutting rates," said Nordea Markets. "The main
focus is on the housing market and the underlying macroeconomic
development in the economy."
(Reporting by Gwladys Fouche and Camilla Knudsen; Editing by