Inflation is markedly above the target. Wage growth is set to be higher than in 2022. Activity remains high amid continued tightness in the labour market, but pressures in the Norwegian economy are easing.

The Committee judges that a higher policy rate than previously signalled is needed to bring inflation down to target. Inflation has been markedly higher than projected in the March Report. International interest rates have risen more than anticipated. Higher wage growth and a weaker krone than projected earlier will push up inflation ahead.

“If we do not raise the policy rate, prices and wages could continue to rise rapidly and inflation become entrenched. It may then become more costly to bring inflation down again”, says Governor Ida Wolden Bache.

The interest rate path ahead will depend on economic developments. If the krone turns out to be weaker than assumed or pressures in the economy persist, a higher-than-projected policy rate may be needed to bring inflation down towards the target. At the same time, the effects of the past rate hikes are not yet fully evident. Looking ahead, the tightening effect of high inflation and higher interest rates on household consumption is uncertain. If inflation declines more rapidly or there is a more pronounced slowdown in the Norwegian economy, the policy rate may be lower than currently envisaged.

The policy rate forecast has been revised up since the March Report and indicates a rise in the policy rate to 4.25 percent in the course of autumn.

The August policy rate decision will be presented at an event during “Arendalsuka” on 17 August.