How will the war in Ukraine impact the cost of living in Norway?
Economic sanctions imposed on Russia in response to the invasion of Ukraine are already making their impact felt at petrol pumps, but what other knock-ons are there for the cost of living in Norway?
This week has already seen record-high prices for energy, petrol and diesel in Norway as a result of rising gas and oil prices triggered by Russia’s invasion of Ukraine.
The knock-on effects of the war are likely to be felt by Norwegian consumers even more in the near future, with the invasion impacting everything from the cost of fuel and energy to food and flight tickets.
Energy prices
Earlier this week, electricity prices topped 10 kroner per kilowatt-hour for customers in parts of Norway, when taxes and grid rent are included. Unfortunately for billpayers, this price is likely to rise in the future due to a mix of domestic factors and steps taken by Europe and the United States to ban oil or gas imports.
Even though the country relies primarily on hydroelectric power for its energy needs, sanctions against Russian oil and gas imports will still affect energy prices. The cost of electricity typically follows international oil and gas prices, which are at their highest level since the Global Financial Crisis in 2008.
Some consolation to households will be the government saying that it would look to continue its energy bill subsidy scheme, which sees the state pick up 80 percent of the bill if prices remain high.
The new minister for oil and energy, Terje Lien Aasland, told NRK that “for as long as energy prices are high, then we will contribute” and that the scheme would continue.
Food
In February, monthly food prices rose by 4.5 percent, the largest monthly jump since 1981, figures from Statistics Norway released on Thursday revealed.
The rises seen in February weren’t a result of the war in Ukraine. However, industry heads have said that the war in Ukraine was likely to inflate shopping bills in the future.
“This is the first signal that there will be more (food price increases) here in the future with the war in Ukraine and the effect it gives. Inflation is high, and will be higher (as a result),” chief economist at food producer Nordea, Kjetil Olsen, told public broadcaster NRK.
The war in Ukraine affects food prices in two ways. Firstly, soaring fuel and energy costs increase overheads for producers, which are then passed onto suppliers, then to supermarkets and finally to consumers.
READ MORE: Why is food in Norway so expensive?
Secondly, Russia and Ukraine account for a third of the world’s barley and wheat exports, meaning the price of raw materials will also go up.
The impact of these factors won’t be felt straight away, though. This is because supermarkets typically only adjust their prices twice a year, once in February and once again in July.
Fuel
Soaring crude oil prices have had a knock-on for fuel. Prices have already topped 25 kroner per litre for both petrol and diesel, and analysts have said that the squeeze at the pumps could become even tighter in the near future.
Professor Øystein Foros at the Norwegian School of Management, who has studied fuel prices for 20 years, told broadcaster TV2 that “The price of oil determines the price of petrol. If the oil price goes up more now, then we can get petrol prices of 30 kroner a litre”.
Fuel prices won’t just affect those at the petrol pumps, but also those at check-in terminals. This is due to the rising cost of jet fuel likely leading to more expensive airline tickets.
This will make it more expensive for foreign residents to visit friends and family back home and vice versa.
Airlines tickets may go up because some of the most popular airlines operating in Norway, such as Flyr, Norwegian and SAS, don’t have a fixed price agreement on fuel, meaning they are paying current market prices, which have soared recently.
Wages could go up
One unexpected effect of the war in Ukraine and one which could help offset some of the cost of living increases is the potential for wages to be increased.
The country has just entered its wage settlement negotiation season. This is where unions and employers enter talks over how much wages for workers will increase for the year.
Increased inflation means unions are likely to push for higher wages to ensure that workers purchasing power doesn’t shrink.
“I envisage a possible wage increase of around three to four percent,” Kyrre Knudsen, chief economist at Sparebank 1, told NRK.
“The high prices of electricity, fuel and eventually food will pull up inflation. Now it is assumed that inflation will be around three percent, and then you will get a wage increase that exceeds inflation,” he explained.
“When you gradually sum up 2022, the salary for most people will have increased slightly more than the expenses, despite the fact that it looks quite dark right now,” Knudsen added.
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This week has already seen record-high prices for energy, petrol and diesel in Norway as a result of rising gas and oil prices triggered by Russia’s invasion of Ukraine.
The knock-on effects of the war are likely to be felt by Norwegian consumers even more in the near future, with the invasion impacting everything from the cost of fuel and energy to food and flight tickets.
Energy prices
Earlier this week, electricity prices topped 10 kroner per kilowatt-hour for customers in parts of Norway, when taxes and grid rent are included. Unfortunately for billpayers, this price is likely to rise in the future due to a mix of domestic factors and steps taken by Europe and the United States to ban oil or gas imports.
Even though the country relies primarily on hydroelectric power for its energy needs, sanctions against Russian oil and gas imports will still affect energy prices. The cost of electricity typically follows international oil and gas prices, which are at their highest level since the Global Financial Crisis in 2008.
Some consolation to households will be the government saying that it would look to continue its energy bill subsidy scheme, which sees the state pick up 80 percent of the bill if prices remain high.
The new minister for oil and energy, Terje Lien Aasland, told NRK that “for as long as energy prices are high, then we will contribute” and that the scheme would continue.
Food
In February, monthly food prices rose by 4.5 percent, the largest monthly jump since 1981, figures from Statistics Norway released on Thursday revealed.
The rises seen in February weren’t a result of the war in Ukraine. However, industry heads have said that the war in Ukraine was likely to inflate shopping bills in the future.
“This is the first signal that there will be more (food price increases) here in the future with the war in Ukraine and the effect it gives. Inflation is high, and will be higher (as a result),” chief economist at food producer Nordea, Kjetil Olsen, told public broadcaster NRK.
The war in Ukraine affects food prices in two ways. Firstly, soaring fuel and energy costs increase overheads for producers, which are then passed onto suppliers, then to supermarkets and finally to consumers.
READ MORE: Why is food in Norway so expensive?
Secondly, Russia and Ukraine account for a third of the world’s barley and wheat exports, meaning the price of raw materials will also go up.
The impact of these factors won’t be felt straight away, though. This is because supermarkets typically only adjust their prices twice a year, once in February and once again in July.
Fuel
Soaring crude oil prices have had a knock-on for fuel. Prices have already topped 25 kroner per litre for both petrol and diesel, and analysts have said that the squeeze at the pumps could become even tighter in the near future.
Professor Øystein Foros at the Norwegian School of Management, who has studied fuel prices for 20 years, told broadcaster TV2 that “The price of oil determines the price of petrol. If the oil price goes up more now, then we can get petrol prices of 30 kroner a litre”.
Fuel prices won’t just affect those at the petrol pumps, but also those at check-in terminals. This is due to the rising cost of jet fuel likely leading to more expensive airline tickets.
This will make it more expensive for foreign residents to visit friends and family back home and vice versa.
Airlines tickets may go up because some of the most popular airlines operating in Norway, such as Flyr, Norwegian and SAS, don’t have a fixed price agreement on fuel, meaning they are paying current market prices, which have soared recently.
Wages could go up
One unexpected effect of the war in Ukraine and one which could help offset some of the cost of living increases is the potential for wages to be increased.
The country has just entered its wage settlement negotiation season. This is where unions and employers enter talks over how much wages for workers will increase for the year.
Increased inflation means unions are likely to push for higher wages to ensure that workers purchasing power doesn’t shrink.
“I envisage a possible wage increase of around three to four percent,” Kyrre Knudsen, chief economist at Sparebank 1, told NRK.
“The high prices of electricity, fuel and eventually food will pull up inflation. Now it is assumed that inflation will be around three percent, and then you will get a wage increase that exceeds inflation,” he explained.
“When you gradually sum up 2022, the salary for most people will have increased slightly more than the expenses, despite the fact that it looks quite dark right now,” Knudsen added.
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