How will the weak krone affect food prices in Norway in the future?
Norway imports a lot of its food, meaning that inflation in other countries – as well as the weak krone – affects food prices at home. Is there any reason to be optimistic when it comes to food prices in Norway in the near future?
Norway's geography and cold climate pose several challenges when it comes to agricultural production.
The country has limited arable land, making it difficult to grow certain types of crops and raise livestock on a large scale. As a result, Norway relies on imports to meet the demand for a broad range of foods.
READ MORE: Analysts predict summer of sharp food price rises in Norway
While these imports help strengthen the country's food supply, the exposure means that the prices of imported foods are affected by factors such as inflation in foreign countries and the krone exchange rate.
The Norwegian krone is currently at historically low levels against some of the major foreign currencies.
According to Nils Kristian Knudsen, a Forex (FX) strategist at Handelsbanken in Norway, the fact that a lot of the country's food is imported could put upward pressure on food prices in the medium term.
"There will be an effect. As you know, a lot of our food is imported, and that will put upward pressure on food prices in Norway. We think this will last for at least the next couple of quarters in terms of adding upward pressure on food prices.
"Eventually, depending on the rate movements from now on, we will see changes. If we see a further weakening of the krone, that will add more long-lasting pressure.
"However, we could also experience the opposite and see a gradual strengthening, which would eventually put more downward pressure on food prices," Knudsen told The Local, pointing out that there is some reason to expect a certain level of normalisation in the markets moving forward."
Currency strategist at Nordea, Dane Cekov, agrees with Knudsen. He told The Local that a weak krone exchange rate indicates higher food prices moving forward.
"Yes, a sizable part of groceries in Norway are imported. A weak krone points to higher food prices in the coming months," Cekov said.
Patience needed
However, Knudsen noted that people waiting for the krone to bounce back should be patient, as no concrete movements were unfolding in the markets that would lead to the krone bouncing up again in the short term.
"The way we see it, the krone exchange rate can be described as a high-beta currency (note: beta is a measure of a currency's volatility in relation to the overall market), which means that it is very affected by global developments, in terms of both the business cycle and uncertainty in the global capital markets.
"We see a period forward probably involving headwinds for the krone in terms of global central banks fighting inflation - it still seems like central bank (Norges Bank) rates are posed to increase a bit further, but also the market is probably moving closer toward normalisation in that respect, there is, sort of, a movement of the focus on what will happen next year, and that involves some normalising, cutting interest rates again, we think that will add some tailwind for the krone.
"However, we need to be patient, as we haven't seen this unfolding in the market yet, there are short-term headwinds, but eventually, when we see inflation coming back down again, the krone will have room to recover," Knudsen told The Local.
Earlier in the year, the Norwegian government announced an action plan to drive down food prices and improve the selection on supermarket shelves. You can find a detailed look at the policy in The Local's explainer on the planned measures.
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Norway's geography and cold climate pose several challenges when it comes to agricultural production.
The country has limited arable land, making it difficult to grow certain types of crops and raise livestock on a large scale. As a result, Norway relies on imports to meet the demand for a broad range of foods.
READ MORE: Analysts predict summer of sharp food price rises in Norway
While these imports help strengthen the country's food supply, the exposure means that the prices of imported foods are affected by factors such as inflation in foreign countries and the krone exchange rate.
The Norwegian krone is currently at historically low levels against some of the major foreign currencies.
According to Nils Kristian Knudsen, a Forex (FX) strategist at Handelsbanken in Norway, the fact that a lot of the country's food is imported could put upward pressure on food prices in the medium term.
"There will be an effect. As you know, a lot of our food is imported, and that will put upward pressure on food prices in Norway. We think this will last for at least the next couple of quarters in terms of adding upward pressure on food prices.
"Eventually, depending on the rate movements from now on, we will see changes. If we see a further weakening of the krone, that will add more long-lasting pressure.
"However, we could also experience the opposite and see a gradual strengthening, which would eventually put more downward pressure on food prices," Knudsen told The Local, pointing out that there is some reason to expect a certain level of normalisation in the markets moving forward."
Currency strategist at Nordea, Dane Cekov, agrees with Knudsen. He told The Local that a weak krone exchange rate indicates higher food prices moving forward.
"Yes, a sizable part of groceries in Norway are imported. A weak krone points to higher food prices in the coming months," Cekov said.
Patience needed
However, Knudsen noted that people waiting for the krone to bounce back should be patient, as no concrete movements were unfolding in the markets that would lead to the krone bouncing up again in the short term.
"The way we see it, the krone exchange rate can be described as a high-beta currency (note: beta is a measure of a currency's volatility in relation to the overall market), which means that it is very affected by global developments, in terms of both the business cycle and uncertainty in the global capital markets.
"We see a period forward probably involving headwinds for the krone in terms of global central banks fighting inflation - it still seems like central bank (Norges Bank) rates are posed to increase a bit further, but also the market is probably moving closer toward normalisation in that respect, there is, sort of, a movement of the focus on what will happen next year, and that involves some normalising, cutting interest rates again, we think that will add some tailwind for the krone.
"However, we need to be patient, as we haven't seen this unfolding in the market yet, there are short-term headwinds, but eventually, when we see inflation coming back down again, the krone will have room to recover," Knudsen told The Local.
Earlier in the year, the Norwegian government announced an action plan to drive down food prices and improve the selection on supermarket shelves. You can find a detailed look at the policy in The Local's explainer on the planned measures.
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