The Norwegian inflation figures published last week need, in my view, a little more explanation. After all, the figures provided the first indications of a possible interest rate turnaround in the near future – and Norges Bank is one of the few G10 central banks that has not yet started to cut interest rates, and the market is hardly pricing in interest rate cuts, at least so far, Commerzbank’s FX analyst Michael Pfister notes.

The interest rate turnaround to start earlier than expected

“Over the past ten months, the headline rate has actually been slightly lower on average than compatible with the inflation target, with the exception of October and November, when the headline rate was significantly higher than in recent months. The picture is somewhat different for the core rate, but here too we have seen readings over the past four months that are roughly in line with the target.”

“Norway seems to have made significant progress in achieving the target. Of course, it should be noted that it is also quite possible that inflation in Norway will pick up somewhat in the coming months. One factor pointing in this direction is that oil prices have now risen again. Other energy prices are also likely to rise again in view of the colder months ahead. However, it remains to be seen whether this will be the case.”

“On the other hand, this means that the risks that Norges Bank will start the interest rate turnaround earlier than expected have increased considerably over the summer. At present, Norges Bank's interest rate path implies a possible first move in March 2025. But a first hint in November, followed by a first cut at the December meeting or perhaps in January? This seems much more realistic if the latest inflation figures are sustained.”