Norway's inflation remains stubbornly high despite recent declines. The latest figures from Statistics Norway show the consumer price index rose 5.8% in the past year. Energy prices drove much of the increase though food costs also contributed. Finance Minister Jens Stoltenberg says a 50% cut in food VAT would reduce overall inflation but not the measure the central bank targets.
Stoltenberg spoke to reporters after the cabinet discussed economic policy. He said lowering the 15% VAT on food to 7.5% would shave about 0.3 percentage points off the headline inflation rate. That would bring the annual increase closer to the 5.5% currently recorded. However the underlying inflation rate, which excludes energy and fresh food, would barely move.
The central bank watches the underlying rate most closely when setting interest rates. It stood at 5.2% in September. A VAT cut would not alter that figure enough to change policy decisions. Banks therefore expect the key rate to stay at 4.5% when the monetary policy committee meets next month.
Grocery prices have climbed 11% over the past two years as global supply chain disruptions and domestic wage growth pushed costs up. Farmers and food producers have warned that further price cuts could squeeze already tight margins. The government is reviewing whether to extend temporary subsidies introduced last winter.
Political parties are divided on the VAT proposal. The opposition Progress Party calls it a gimmick that would mainly benefit wealthier households. The Labour Party argues it would ease pressure on low-income families struggling with high food bills.
Source: e24.no