Inflation returns to higher levels. Fuel prices drive sudden price surge

Annual inflation reached 3.6 percent in March, up from 2.7 percent in February. The data was published by Statistics Norway (SSB). Economists point out that inflation remains at too high a level.

SSB identifies fuels and energy as the main source of rising inflation. Prices in the fuels and lubricants category increased by 17.9 percent month-on-month. Year-on-year, they were up by 14.7 percent. Petrol prices rose by 18.7 percent in a single month. Diesel prices increased by 23.6 percent.

This is the highest monthly increase in fuel prices in the history of CPI measurements. A similar dynamic was observed in spring 2022, but then the increase was spread over several months. The current data is the first after the outbreak of the conflict in the Middle East. The rise in oil and gas prices has translated into the domestic market.

"The war in Iran and uncertainty about international oil supplies had a strong impact on fuel prices in March. We have never before recorded a stronger month-to-month increase in fuel prices in the consumer price index (CPI). The last time we saw something similar was in spring 2022, after the outbreak of Russia's large-scale war with Ukraine, but then the price increase occurred over several months," said Espen Kristiansen in a press release.

Electricity prices fell by 6.0 percent month-on-month, but a year earlier the drop was much deeper at 16.9 percent. This difference contributed to the increase in the annual energy price dynamic and accelerated inflation.

Food prices fell by 2.6 percent month-on-month. However, compared to a year earlier, they were 1.1 percent higher. This is the lowest growth rate since March 2022. The price drop limited the overall inflation increase in March. The trend was in line with the seasonal pattern.

The reductions were mainly influenced by promotions related to the Easter period. Citrus fruits, sweets, and lamb meat were among the products that became cheaper. This year, discount campaigns started earlier than last year due to a different holiday calendar arrangement. As a result, a larger portion of the price reductions was included in the March data.

Other categories saw varied price changes. Clothing and footwear prices rose by 3.1 percent month-on-month, due to the end of sales and the arrival of new collections. Increases were also recorded in the furniture and household equipment category, where prices rose by 1.1 percent month-on-month and 2.4 percent year-on-year.

Price hikes also affected the information and communication sector, with prices in this category rising by 1.2 percent month-on-month. As a result, the annual price dynamic reached 2.5 percent. Increases were also seen in transport, where prices rose by 1.3 percent month-on-month and 4.2 percent year-on-year. Higher prices were also recorded in the catering and hotel sector, with increases of 1.4 percent month-on-month and 6.3 percent year-on-year.

Financial and insurance services also saw price increases, with this category recording the highest annual dynamic at 8.5 percent. Health also saw increases, with prices up by 0.7 percent month-on-month and 3.6 percent year-on-year. The category of other goods and services saw a decrease of 1.2 percent year-on-year.

Core inflation was 3.0 percent in March, remaining at the same level as the previous month. It was slightly lower than economists had forecast, who expected 3.1 percent. Overall inflation was in line with expectations.

Norges Bank's inflation target is 2 percent. The indicator has remained above this level for a long time. Before the outbreak of the conflict, inflation had started to rise again. Norges Bank changed its earlier plans for rate cuts and now points to the possibility of raising them.

March data shows a clear impact of external factors on the Norwegian economy. The effect of changes in energy markets is particularly visible. The increase in fuel and energy prices has directly affected inflation indicators. At the same time, inflation remains above the central bank's target. The coming months will show whether price pressure will remain at an elevated level.