January 10, 2013 / 9:36 AM / in 5 years

UPDATE 1-Norway's inflation fall could delay rate hike

* Core inflation 1.1 pct yr/yr vs forecasts for 1.3 pct

* Other weak data also point to slower rate hikes

OSLO, Jan 10 (Reuters) - Norwegian inflation slowed more than expected in December, giving the central bank another reason to postpone an interest rates hike otherwise expected this year.

Annual core inflation, a key measure watched by the bank when making rate decisions, slowed to 1.1 percent from 1.3 percent in November, missing expectations for an unchanged rate and staying well clear of the central bank’s 2.5 percent target.

“In addition to the other figures we have had this week, manufacturing production and weak retail sales, all points in the direction of a lower interest rate path,” Handelsbanken senior economist Ida Wolden Bache said.

“We don’t think Norges Bank (the central bank) will be in a hurry to raise interest rates,” she added.

Indeed, a string of recent data have indicated that Norway, one of Europe’s top economic performers, is feeling the pain of Europe’s recession.

Unemployment unexpectedly rose, manufacturing output outside the lucrative oil sector fell and households, usually big spenders, reined in consumption as attitudes grew more cautious.

All of these point to a delay in Norges Bank’s rate hike, tentatively expected between March and September.

The bank is keen to raise rates to cool a red hot property market as exceptionally low rates encourage households to pile on debt.

But a hike would strengthen the currency, cutting inflation further, even as it is expected to undershoot its target for several years.

Although headline inflation, which includes more volatile items such as energy, came in line with expectations at 1.4 percent, it also remained well below the bank’s target.

Still, despite recent weakness, Statistics Norway expects the economy to expand by 2.9 percent this year, well outpacing the euro zone, which is struggling to climb out of a recession, it said earlier.

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