Archive

Oil’s political pressure is not persistent

• Concerns that the rise in oil and gas prices is fuelling inflation are legitimate but overblown. Covid-risk has temporarily discouraged Opec+ output rises, compounding Russia’s tactical pressure, which is not a source of persistent energy price inflation.

By Alastair Newton

Norway: Norges Bank leads the G10 pack

• As expected, the policy rate was increased from zero to 0.25%, with a second hike signalled for December. The new rate projection is even higher than we expected.
• Relaxing Covid rules led to a brisk economic upswing, with mainland GDP at new highs. Underlying CPI-ATE inflation has drifted down, but changes in indirect taxes and substantial energy price volatility have caused CPI and CPI-ATE to diverge.
• The Norges Bank has produced multiple upgrades to policy rate projections during 2021 and signalled a series of rate increases well ahead of their G10 peers. Risks skew towards disappointment, but that more threatens rate changes beyond Dec-21.

Inflation expectations start stretching

• New price shocks stretch the peak and persistence of excess inflation. Although we still see this pressure as transitory, we are mindful of the risk expectations might shift. The responsiveness of inflation forwards to spot changes is most concerning.
• Wage negotiations will be the ultimate check, albeit lagging behind expectations and our statistical measures of underlying inflation. Wages corroborate hawks in Norway, less dovish pressure in the UK and Sweden, while the Euro area remains in a low rut.