Inflation target as the only guideline for the nasjonalbankens rente

After more than 30 years as a Management/Executive Consultant in the Nordic financial industry, one wonders about the vertical thinking that characterizes our country today – at a time when holistic thinking would have been desirable, not to mention necessary.

For the past 20 years of my professional career, I have worked to streamline and optimise Nordic Fund and Asset management processes and companies. One of the most effective tools in this regard is to see the connection between vertical interests and horizontal interests, often called holistic views.

Instead of looking at what can be streamlined within the individual department in an organizational unit, one looks at the connections between the individual departments and their business processes and other departments/processes. This is to ensure that you have a holistic picture of the whole that the business has consisted of historically and will continue to consist of in the future. No one wants an efficiency improvement that affects the overall quality negatively.

What has happened in Norway lately – and in many other countries as well?

1. The price of electricity has increased by factor 4 (+/-)

2. The price of fuel has increased relatively much

3. Food prices have increased considerably

4. Interest rates have been raised with double/triple interest rate hikes

5. FSA proposes tightening housing financing

6. Cost cutting is coming in many workplaces

Each of these can be regarded as vertical attributions to the holistic truth which in this example is the family and/or company. Each of these points can be defended and explained individually, but who assumes responsibility for looking at the horizontal picture that in this case is “the family” or “the business”?

Does Norges Bank do this when it points out that inflation is at 6-8% and well above 2% which is the inflation target?

Based on the inflation target, it is a simple quantitative assessment to see that the policy rate of Norges Bank should be increased (vertical assessment), but if one look a little behind the figures – is it so certain in a holistic context?

The rise in prices is at 7,5% and there is no doubt that the price of electricity has a substantial direct and indirect attribution to the inflation. The same also applies to fuel prices. But don’t they also have a significant indirect attribution to the rise in prices, in that shops, offices, transport, services, services, agriculture and fishing, etc. must raise prices because fuel and electricity increase?

My contention is that if, from a holistic point of view, one tried to find the correct inflation in Norway adjusted for the abnormal situation Europe in terms of gas and electricity, I would not be surprised if inflation were around the inflation target – and certainly nowhere near the 7.5% now used as an argument for higher interest rates.

In the current situation – just by looking around you and on your own bank account, one can see that the private economy has tightened up significantly.  Vertically, almost all stores/restaurants etc have experienced lower revenue already which is the target when Norges Bank raises the rate.

Perhaps there should not have been higher interest rates at all. Holistically speaking, several of these components each contribute to a sharp tightening of the economy.

My first question is therefore; Norway have close to no influence on the European price on gas and electricity meaning its attribution on our price on electricity and fuel will continue to be high as long as it remain so in Europe.  No matter how high Norges Bank is raising the rate, the European price on electricity and gas will remain unchanged and Norges Bank will have to continue.  this can really lead to a economical development in Norway we’ve never seen before. Or, am I wrong?

The final question becomes: When everyone looks at their own toolbox and makes their autonomous corrections, who secures the holistic view?

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