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MONEY

What’s caused a drop in disposable income in Norway?

Households in Norway no longer have the highest disposable income in Europe, and several factors have been pointed to as the reason for the drop.

Published: 21 February 2024 15:44 CET
Pictured is a housing development in Oslo.
Norway has seen a drop in disposable income over the last few years. Pictured is a tower block in Oslo. Photo by Emmanuel Appiah on Unsplash

Norway is the European country with the sixth highest disposable household income, figures obtained by the Norwegian newspaper Aftenposten from the European data agency Eurostat show.

This is a significant fall for the Nordic country, which was top of the table as recently as the beginning of 2022. Disposable income in Norway has actually fallen from 8,337 euros per month to 7,475 euros between the start of 2022 and the end of 2023.  

This decline has seen Norway overtaken by Belgium, Denmark, Germany, the Netherlands and Austria.

READ ALSO: How much money do you need to earn in Norway for a good life in 2024?

Several factors have been pointed to as reasons why Norway has seen a drop in disposable income. Roger Bjørnstad, chief economist for the Norwegian Confederation of Trade Unions (LO), said the drop was due to rising interest rates.

“Norwegian households have record debt in a housing market that has been under pressure for decades. No other country has experienced such a sharp decline in household incomes,” he told Aftenposten.

For the purpose of the figures, disposable income was defined as gross income minus tax and interest expenses.

Norway’s central bank has implemented 14 interest rate hikes since 2021 to try and curb inflation. The higher interest rates had made loan and mortgage repayments much more costly, especially for those who borrowed when rates were set to the historically low value of zero per cent.

However, Øystein Dørum, the chief economist at the Confederation of Norwegian Enterprise (NHO), pointed to the exchange rate as the reason for the drop.

As the krone has become weaker against the euro, then those paid in euros see a boost to their disposable income, while those paid in euros lose out even if their wages increase.

Norway’s krone slumped against almost all other major currencies in 2023, reaching near-historic lows against the euro, pound and the dollar.

In addition to skewing measurements between Norway and countries that use euros, the weak exchange rate was seen as one of the key drivers of inflation in Norway due to it pushing up the cost of imported goods.

As Denmark’s krone is pegged to the euro, it has also increased significantly in value against its Norwegian counterpart – playing a factor in Norway being leapfrogged by its neighbour.

The weak krone was a reason the central bank in Norway continued to hike interest rates even as inflation slowed.

Norwegian wages could also be a factor in disposable income in the country slipping. Real wages, which account for how much salaries rise in line with inflation, fell slightly in Norway last year.

Despite average wage increases of 5.3 percent, real wages fell by 0.2 percent due to high inflation.

A previous study from Norway’s national data agency, Statistics Norway (SSB), predicted that by the end of last year, workers in Norway would only be marginally better off than they were in 2015.

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ECONOMY

What lower inflation in Norway means for you 

Inflation in Norway continues to slow. However, the cost of living in the country isn’t slowing as quickly as economists expected. Here’s what that means to you. 

Published: 10 May 2024 11:44 CEST
What lower inflation in Norway means for you 

Inflation is slowing 

Norway’s Consumer Price Index, CPI, which measures changes in prices for household goods and services, has slowed yet again. 

Between April last year and the same month this year, prices in Norway rose by 3.6 percent. It marks the third time that price increases have been below four percent since the start of 2022. 

The figures, released by Norway’s national data agency Statistics Norway, mark the fourth month in a row where the 12 monthly inflation figure has been lower than the yearly figure from the month before. This means prices are rising less rapidly than before. 

“Price growth decreased for the fourth month in a row in April. Prices are still higher than they were at the same time last year for most goods and services, but they are generally rising more slowly than before,” Espen Kristiansen at Statistics Norway said. 

Food remains one of the biggest contributors to inflation 

The price of food and non-alcoholic beverages rose by 3.3 percent from March to April, according to Statistics Norway. 

Chocolate, soft drinks, coffee, and citrus foods saw the biggest price increases, which the national data agency called “unusual.” 

What wasn’t unusual, however, was the cost of food rising following Easter, when many supermarkets ran offers to compete for customers. 

“The rise must be seen in the context of the fact that large offer campaigns in connection with Easter dampened prices in March,” Kristiansen said. 

The figures for April show that food prices in Norway have increased by 6.8 percent compared to a year ago. 

The rising cost of food and drink in Norway could potentially outgrow wages this year, even if expected pay bumps will outpace forecasted inflation overall. 

Economists expected inflation to fall more 

Inflation hasn’t eased as much as some experts were expecting. Core inflation, which excludes energy prices and taxes, was measured at 4.4 percent year on year in April. This is above what economists surveyed by the newswire Reuters expected. 

Norges Bank, the country’s central bank, raised the policy rate to a 16-year high of 4.5 percent in December. The bank has said that inflation should generally be around two percent, so it has used interest rates to curb price increases. 

As inflation isn’t falling much quicker than expected, economists predict that the central bank may wait until December before slashing rates – which for consumers means that loan and mortgage repayments will remain high for the foreseeable future. 

“The fall in inflation has not been much greater than Norges Bank has thought. This, therefore, indicates that an interest rate cut may come in December instead of September,” Kjersti Haugland, chief economist at DNB Markets, told public broadcaster NRK. 

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