Key Moments
- Norway’s January headline inflation printed at 3.6%, with core inflation at 3.4% year-on-year.
- Commerzbank’s Antje Praefcke highlights that the latest inflation data reinforces the view that Norges Bank is unlikely to cut rates for now.
- NOK strengthened after the inflation release, supported further by rising Oil prices, with real rates viewed as critical for sustaining the currency’s gains.
Inflation Data Shifts Rate Cut Expectations
Commerzbank strategist Antje Praefcke argues that the latest Norwegian inflation report has effectively removed interest rate cuts by Norges Bank from the immediate policy agenda. The January figures showed headline inflation at 3.6% year-on-year and core inflation at 3.4% year-on-year, levels that she views as incompatible with near-term monetary easing.
According to Praefcke, these readings should dispel any remaining doubts among market participants who had expected that Norges Bank might still consider rate reductions despite its recent communication.
Underlying Price Dynamics Remain Too Strong
Praefcke emphasizes that the broader inflation picture is not just about the annual headline and core numbers. She points to the importance of the underlying trend captured by the seasonally adjusted monthly rate of change, which in her view continues to signal that price pressures are elevated.
She notes that “the underlying trend, i.e., the seasonally adjusted monthly rate of change” underscores that inflationary dynamics remain too robust to be consistent with the central bank’s inflation target or to justify a more relaxed policy stance.
Market Reaction: NOK and Oil Provide Dual Support
The Norwegian Krone reacted positively to the inflation print, with Praefcke observing that “the NOK gained significantly following yesterday’s announcement.” She adds that the move in the currency was not solely driven by the data, highlighting that the Oil price, which has been rising for several days, likely contributed additional support to NOK.
Real Rates in Focus for NOK Sustainability
Despite the immediate boost to the Krone, Praefcke cautions that maintaining the currency’s recent strength will depend on the behavior of real interest rates. She stresses that, with inflation moving higher, it is crucial that real rates do not decline further if NOK is to hold onto its latest gains.
Key Figures at a Glance
| Indicator | Period | Value |
|---|---|---|
| Headline inflation (year-on-year) | January | 3.6% |
| Core inflation (year-on-year) | January | 3.4% |
“With the Norwegian inflation figures for January, even those who still had doubts despite the recent statements made by Norges Bank should now realize that interest rate cuts by Norges Bank are off the table for the time being. This is because inflation rates rose to 3.6% (headline rate) and 3.4% (core rate) year-on-year.”
“Even more important is the underlying trend, i.e., the seasonally adjusted monthly rate of change. Here, too, it is clear that inflationary pressure is too high to be in line with the inflation target and allow Norges Bank to relax its vigilance.”
“The NOK gained significantly following yesterday’s announcement. However, the oil price, which has been rising again for several days, is likely to have provided additional momentum. Nevertheless, it is important that the real interest rate does not fall further (due to the rise in inflation) so that the NOK can maintain its gains.”
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