Statistics Norway has never measured such a large increase in electricity prices. Overall price growth is the highest in more than five years.
The total consumer price index (CPI) increased 4.1 percent in September compared to the same month last year, which is the highest since July 2016. At the same time, core inflation, which is inflation adjusted for tax changes and excluding energy products, increased to 1.2 percent, figures show from SSB.
Core inflation was expected to be 1.3 percent year-on-year, up from 1.0 percent in August, according to Bloomberg.
Electricity price record
– By far the most important contributor to the rise in the CPI in the last twelve months is historically high electricity prices, he writes SSB in Monday’s press release.
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– We have been spoiled by low electricity prices.
From September last year to September this year, electricity prices, including network rent, increased 107.7 percent. This is the largest annual price increase ever measured by the statistics agency.
However, prices have risen from a very low level last year.
The price increase in recent months is partly due to dry weather in southern Norway, but also to European conditions such as high gasoline prices and CO2 prices.
Inflation without electricity increased by 1.2% in the corresponding period, which means that electricity prices helped the consumer price index to rise by 2.9%.
Think core inflation is bottoming out
Norges Bank directs its interest rate setting towards one core inflation of around two percent overtime. Inflation above the target typically suggests an adjustment by raising interest rates, while otherwise it points to interest rate cuts.
Inflation has been overshadowed for some time by the pandemic, the effects of the reopening, and the trend in unemployment, but it is becoming increasingly important in light of central bank tightening plans.
Norges Bank has announced that the interest rate is most likely to rise again to 0.5% in December, after raising the interest rate in September for the first time since before the pandemic.
Norges Bank itself expected core inflation of 1.2% in September.
– All indications are that core inflation is about to bottom out, chief economist Frank Jullum at Danske Bank told TDN Direkt ahead of the figures.
He noted that during the fall, the decline in core inflation has been driven by base effects and lower imported inflation. However, we are now seeing increasing price pressure globally, a weaker krona exchange rate, and rising wages.
Handelsbanken Capital Markets chief economist Marius Gonsholt Hov also believes that core inflation will remain at this level in the future.
Lower food prices
While electricity prices contributed to an overall sharp rise in prices, food and non-alcoholic beverages went in the opposite direction. This group fell 3.8 percent from September last year.
Food prices also fell from the previous month, down 1.6 percent from August.
– The activity of supplying lamb and fresh vegetables, including especially potatoes and tubers, contributed more to the fall in food prices, writes Statistics Norway.
Passenger transport by air also showed a decrease in the last twelve months.