A struggling krone means it will take longer for inflation to fall in line with the two percent target set by Norges Bank, Statistics Norway (SSB) has forecast.
“The record weak krone exchange rate is putting parts of the economic policy in Norway to the test,” SSB researcher Thomas Von Brasch said of the krone.
“We estimate that the central bank will raise the interest rate by 0.25 percentage points in both June and September so that the peak interest rate will be 3.75 per cent in the autumn,” Brasch said.
Norges Bank has been using interest rates to try and control inflation in Norway. In May, prices were 6.7 percent higher than the same month a year before.
The cost of flights, food and rent were the main drivers of the inflation figures. Price growth on imported goods, caused by the weak, has also contributed to the increased prices in Norway.
Lower interest rates in Norway than elsewhere also drive a weak krone.
Norway’s largest bank, DNB, expects interest rates to be even steeper. It expects Norges Bank to raise the key policy interest rate by 0.5 percent in June. This would bring the key policy rate to 3.75 percent.
A number of economists have said that the inflation figures released Friday were bad news for the central bank.
“Norges Bank has a bigger job to do than what they have assumed so far,” chief economist for Nordea Markets, Kjetil Olsen, told Norwegian business newspaper Dagens Næringsliv.
He also predicted an interest rate peak of more than four percent.