Are you earning more than last year? Norwegian economists: that's why inflation is rising
Wage growth in Norway remains high, and according to economists, it is one of the main factors behind persistent inflation. To maintain profitability, more and more companies are raising the prices of goods and services. Norges Bank has already revised its interest rate forecast upwards. Current data indicate that the pace of inflation decline may be slower than previously assumed.
Norwegian economists are divided.
Fot. MojaNorwegia
According to data from the Central Statistical Bureau, the core inflation rate in August was 3.1 percent, with an inflation target of 2.0 percent. Economists' forecasts assume that inflation will remain around 3.10 percent, which matches the expectations of Norges Bank.
These results should not significantly affect the current path of interest rate reductions. In September, the central bank signaled that higher rates may remain in place for longer. This move was a response to the slower pace of price declines and continued wage pressure.
These results should not significantly affect the current path of interest rate reductions. In September, the central bank signaled that higher rates may remain in place for longer. This move was a response to the slower pace of price declines and continued wage pressure.
Rapid wage growth drives up prices?
Economist Sara Midtgaard pointed out in E24 that it is particularly the prices of Norwegian goods and services that are keeping inflation elevated. In her opinion, rapid wage growth in sectors with low labor productivity forces companies to raise prices to compensate for rising costs.
The share of labor costs in industry has fallen, but in other sectors, companies are passing them directly onto consumers. As a result, the highest price increases are seen in construction and services. This, in turn, affects overall living costs and makes it harder for inflation to fall quickly.
The share of labor costs in industry has fallen, but in other sectors, companies are passing them directly onto consumers. As a result, the highest price increases are seen in construction and services. This, in turn, affects overall living costs and makes it harder for inflation to fall quickly.
Recent statistical data show that residents of Norway have received wage increases that outpace the inflation rate. This means a real increase in salaries.Photo: Adobe Stock, standard license
It's not just wage growth that affects inflation
Handelsbanken's chief economist, Marius Gonsholt Hov, told E24 that while wage growth does impact inflation, it is not the only factor. In his view, each additional 1.0 percent increase in wages can raise inflation by about 0.2 percentage points in the first year and by 0.1–0.2 percentage points in the following two years. According to Hov, much lower wage growth would not be enough to quickly reduce inflation.
Hov admits that other factors also influence prices, including the exchange rate and energy costs. The economist predicts that core inflation will decline slowly and that interest rates will remain high until inflation approaches the target.
Hov admits that other factors also influence prices, including the exchange rate and energy costs. The economist predicts that core inflation will decline slowly and that interest rates will remain high until inflation approaches the target.
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