Price growth in this country is still far, far above the desired levels. On Wednesday morning there was another cold shower, which shows that the price increase was 6.4 per cent in April. And although price inflation now shows signs of leveling off, it is still sky-high. Norges Bank has a target for price growth of 2 per cent over time. We are miles away. Today’s figures are the last thing Norges Bank wants right now. Price inflation must come down, it will not do for it to flatten out. Today’s figures are also the last thing Norwegian mortgage customers want right now. The interest rate peak is likely to be even higher than Norges Bank said just two months ago. Many economists are now predicting a key interest rate of 4 per cent already in early autumn, which means a mortgage interest rate of around 5.5 per cent well before the Christmas holidays. In March, it was expected that the key interest rate would not be higher than 3.5 per cent. Policy rate in percent The policy rate is set eight times a year by Norges Bank. The policy interest rate governs the interest rates in the banks, and affects your housing costs. The aim of raising the interest rate is for the high prices to come down again. The forecast tells us how Norges Bank thinks interest rates will develop in the future. Read more about sources and reservations here. A higher policy rate means increased expenses if you have a mortgage 2021 2022 2023 2024 2025 2026 Forecast Norges bank Like walking in the mountains The interest rate peak has become like going on a mountain trip. When you think you’ve reached the top, there’s a small peak that you didn’t see when you were a little further down. A moving target, which constantly seems further away. Why don’t they get price inflation under control? The answer is complex, but there is one thing that seems married into the Norwegian economy right now: the weak krone exchange rate. The weak krone exchange rate makes it difficult in several ways: Everything we import from abroad (and there is a lot!), becomes more expensive. When, for example, a Norwegian clothing chain imports goods from abroad which it sells on to Norwegian customers, it has to pay more for those goods because the krone is weak. The increased cost is largely passed on to Norwegian customers. The figures from Statistics Norway on Wednesday show that the price increase for the goods we produce in this country has moderated somewhat, the price increase for the imported goods still has an upward trend. The highlighted part of the sentence is really bad news, although it is not particularly surprising because the Norwegian krone has been very weak in recent months. Uptrend means that it is likely to continue to rise going forward. Norwegian export industry is having good times now, because they are well paid for everything they sell abroad. That’s good, but it also creates a problem. When these companies earn extra well, it means that their earning power becomes extra high. Those who work there want more of that cake. Even if there is agreement on a wage settlement in the private sector of 5.2 per cent, local negotiations will in some places be in danger of slipping out – which in turn will help push wage growth upwards. This will in turn put pressure on price growth, and may initiate a wage and price spiral. Must deal with the krone Norges Bank does not manage according to a target for the krone exchange rate. In Norway, we have a floating exchange rate, and monetary policy – i.e. what Norges Bank does – is done to keep price growth at 2 per cent over time. Norges Bank’s instrument of action is the key interest rate. The Norwegian krone is at a record low. Photo: Simon Skjelvik Brandseth / news Nevertheless, they have to deal with the weak krone, precisely because it is one of the most important reasons why prices are rising so much right now. So the answer to the high price increase, and indirectly also the weak krone, is to splurge on even more interest rate hikes. Has withstood the interest rate hikes – so far So far, both Norwegian households and the Norwegian housing market have withstood the interest rate hikes well. Surprisingly good, some might say. You see that the housing market continues to rise, and you also see that our consumption remains high. There are several reasons for that. The labor market has remained tight, and more Norwegians have found work. We have not had a hard landing in the Norwegian economy. We also still have funds saved after the pandemic, but during the year it is expected that these saved funds are about to run out. Raising the interest rate three more notches could bite quite hard for many. In Norway, we have very high household debt, and the debt ratio has long been a major concern. Our debt burden is at a high level both historically and compared to other countries. Historical levels According to a new report on financial stability from Norges Bank, the risk of a major fall in house prices has increased as house prices have grown faster than household incomes over a long period of time. “Fortunately”, housing construction is quite low right now, which may dampen the drop. According to the report, people’s interest burden will increase from around 7 per cent in the fourth quarter of last year, to just over 9 per cent of disposable income during the year. The figures in the report may already be out of date, as they are based on Norges Bank’s forecasts from March when things were less bad than they are now. In comparison, the interest burden was just over 4 per cent in the fourth quarter of 2020. Households’ debt servicing ratio, which includes both interest and normal installments, will increase to a historically high level, says the report. How much can we tolerate? Norges Bank is currently faced with the dilemma of the times: how much can we really tolerate? How hard will the Norwegian economy be hit? How high can the interest rate get, before many people are unable to service their mortgages? Is Norges Bank able to break the price increase before the housing market perhaps suddenly turns around? It is a race we should hope central bank governor Ida Wolden Bache wins. In the meantime, the rest of us have to be ready to walk a few more meters before we reach the top of the mountain. Interest calculator The calculator uses the formula for annuity loans to calculate your monthly costs. Nominal interest is used here. This means that there will be an additional transaction fee which will vary from bank to bank. Today’s interest rate is taken from DNB’s mortgage interest rate for young people, and different banks will have different interest rates. The figures given here will therefore be approximate for you. Monthly expenses are interest and repayments combined. Read more about sources and reservations here. See how much you have to pay if the interest rate increases.
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A bit married into the Norwegian economy – Statement
