Wednesday morning CPI figures for July will be released: How high have prices gone? June numbers were surprisingly highThe July numbers could be worse.
Food prices are most exciting for individual product groups. Prices rose in July, in part as a result of agricultural settlement. Showed Nettavisen shopping cart 1 month ago An increase of 16-17 percent.
We believe that food prices will continue to rise to an annual growth rate of over 7 percent, from 5.5 percent in June. The agricultural settlement gives a 1.2 percent increase in CPI, but we can get more at the top in the form of some imported goods, chief economist Marius Gunsholt Hof at Handelsbanken Capital Markets tells Nettavisen.
In June, Norges Bank raised the interest rate by 0.50 percentage point to 1.25 percent, double what normal interest rate increases. The Bank of Norway governs interest rate policy accordingly Core inflationBase price increase. This price increase is well above the 2 percent target. There is an interest rate risk on the way.
What would Norges Bank require to collect the vulnerability again?
– If core inflation is higher than expected and the unemployment rate falls further. If there is an individual price increase, another thing, if the rise is broadly based across many price categories.
A broader recovery coupled with a tighter labor market and the higher interest rates we see around us could accelerate price increases. There is a climate for faster rate increases, Hov answers, noting increases in both the US and Europe.
In an update, Hof notes that it is food prices and plane tickets in particular that are driving up prices in July. But price pressure in the Norwegian economy is broad.
The gap is widening
Experts expect core prices to grow 3.8 to 3.9 percent in August, much higher than the Norges Bank itself had forecast. Handelsbanken insures the full 4 per cent. The gap between Norges Bank and market expectations has increased since June. It is not good for those who fear rising interest rates.
By comparison, the base price increase in Norway, corrected for energy prices and tax changes, was just 0.9 percent from October 2020 to October 2021. In less than a year, prices have risen dramatically.
Wednesday’s consumer price numbers are the last significant key number ahead of the August 18 interest rate meeting. Norges Bank usually pauses interest rate assessments on the Friday before the interest rate meeting (now August 12th).
Hof doesn’t think she’s strict before a mediator meeting. Norges Bank will not release new forecasts for the economy until the next regular meeting in September.
How conclusive are the numbers released on Wednesday for the August 18 interest rate meeting?
– This meeting will be very important if the deviation from the expectations of the Norges Bank becomes greater than what we and a number of others think. Hof says the market is setting a high probability that there will be a twofold increase in the interest rate.
So far, Handelsbanken has relied on Norges Bank’s interest rate forecast for 2022. This means that the prime rate at the end of the year is 2.25 percent. Hof says it’s not a given that they would change that estimate.
– Then we believe that the interest rate will rise to 2.75 percent during the first half of next year. There, Norges Bank hit 3 per cent or maybe 3.25 per cent, but now we see expectations for future interest rate increases are lower, the chief economist says.
up to 5 percent
Today, the typical interest rate on a mortgage is probably around 2.9 percent. If the prime rate is 3 percent within one year, you can count on an interest rate of about 4.5 percent. If you have a 3 million mortgage, you will have to pay 13,300 NOK per month in interest and installments, with grants annual loan which are repaid over 25 years.
DNB Markets expects overall prices to rise by 6.4 percent from July 2021 to July 2022. They are lower than they were in June and much higher than expected wage growth from 2021 to 2022. The brokerage expects core inflation to rise to 3.8 percent year-on-year. .
Thus, one of the important factors for July prices is the rise in food prices.
Just over 5 percent
– Food prices usually rise somewhat in February and July, especially in July due to agricultural settlement. We assumed food prices would rise 5.3 percent in July, after an extraordinary 2 percent growth in June. This will be the strongest monthly growth in more than 15 years, says chief macroeconomist Kerry Amdahl at DNB Markets.
A higher-than-expected inflation in June and a slight drop in the unemployment rate raise the possibility of a 0.50 percentage point rise.
July inflation does not need to increase this risk, even if core inflation increases as we expect, Amdahl says.
High international interest rates, higher inflation abroad, a growing energy crunch and persistent inflationary surprises increase the likelihood of interest rate hikes twice. A little stronger crown Pull a little in the opposite direction.
The market rate is likely to increase the interest rate twice in August. We’ve held 0.25 percentage points so far, Amdal says, but we see few who will raise that percentage to double that amount.
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