Wednesday, January 19

Experts expect four interest rate hikes this year after unexpectedly high inflation

In Nordea and Handelsbanken, they now expect Norges Bank to raise interest rates once again in 2022.

CHIEF ECONOMIST: Kjetil Olsen in Nordea Markets believes it smells like a demanding wage settlement and several interest rate hikes due to the surprisingly strong inflation.


Total inflation rose by 5.3 per cent in December, and core inflation ended at 1.8 per cent.

It has been described as surprisingly high, and Kjetil Olsen, chief economist at Nordea, points out that inflation was higher than many had imagined in December.

– One thing is electricity prices, which we are familiar with in a way, he says and refers to the total consumer price index.

– What we also see now is that price growth for other goods and services is on the rise, he adds.

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Now we are also starting “here at home” to notice the increased prices of goods and shipping that have come during the pandemic, Olsen points out.

– It pulls in that direction

This is something Norges Bank has assumed will come in 2022, but it seems that it happened already towards the end of last year, he says. It helps to support the plan from the central bank.

– Here the interest rate will go up, despite the omicron and restrictions, he says.

When Norges Bank raised interest rates in December, they expected three more interest rate hikes in 2022.

– We believe that interest rates will rise not only three, but four times this year, Olsen says.

– It pulls in that direction, he adds.

– A clear upside surprise

In their morning report, Marius Gonsholdt Hov and Nils Kristian Knudsen at Handelsbanken point out that the consensus for core inflation was 1.4 per cent, while Norges Bank expected a 1.3 per cent rise.

– In other words, a clear upside surprise, he writes.

He points out that the price of both imported and Norwegian-produced goods and services increased.

– The immediate comment is that this clearly increases the risk that we will get four, and not three, interest rate increases from Norges Bank this year.

The central bank’s goal is to set key interest rates so that inflation stays as close to two per cent as possible over time. They look at core inflation when setting interest rates.

It ended at 1.8 percent in December, up from 1.4 percent in November.

Hov and Knudsen also point out that the total consumer price index (CPI) could have been higher, as Statistics Norway has taken electricity subsidies into account in its calculation.

– Even with these support schemes in place, the annual growth in the CPI is still very high in relation to wage growth, which may just push up wage growth expectations in the next round.

Quite demanding wage settlement

For most people, December inflation means that purchasing power is hit quite hard, Olsen believes. He now believes that the parties in working life will seek compensation, not only for future price growth, but also for last year’s growth being higher than expected.

– This provides prospects for a fairly demanding wage settlement this year, he says.

Kyrre Aamdal, senior economist at DNB Markets, also believes that the wage settlement will be affected. Despite the fact that the government has provided support to households in meeting electricity prices, there are other indications that inflation may have consequences for the wage settlement, according to Aamdal.

– Higher inflation means that it weakens the purchasing power of households, for which they will seek compensation in wage settlements, he explains.

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