High export prices and wage growth delay disinflation, Bache warns
Norges Bank Governor Ida Wolden Bache stated that elevated export prices and wage spillovers are delaying disinflation. Speaking at the autumn lecture on October 8, 2026, Bache noted that service prices adjust far less frequently than goods.
Why haircuts rarely get cheaper
Microdata from Statistics Norway shows that the frequency and size of price adjustments determine overall consumer price inflation.
While petrol prices adjust continuously, prices for services like haircuts change infrequently.
Service prices are rarely cut; price reductions occur almost exclusively among physical goods.
Moreover, goods prices adjust in larger increments in both directions, allowing disinflation to pass through quickly once supply shocks ease.
In the services sector, downward rigidity prevents similar cooling.
Inflation decomposition shows that falling goods prices generated the initial decline from peak inflation, but the absence of service price cuts has stalled progress, leaving headline inflation persistently above the two percent target.
The Aukrust mechanism at work
Using a two-sector model inspired by Odd Aukrust, Bache explained how export prices affect domestic wages.
The tradable sector sets the nationwide wage benchmark based on global price conditions.
Elevated export prices increase firm profitability and wage-paying capacity.
As these pay increases spill over to the non-tradable sector, domestic services face persistent cost pressures.
Meanwhile, elevated foreign policy rates constrain the krone, preventing currency appreciation from dampening imported inflation.
Convenient structural excuses
The analysis smartly uncovers how export terms of trade feed domestic wage pressures.
Yet blaming structural bargaining models conveniently deflects from domestic policy hesitation.
Until monetary policy actively curbs wage spillovers, disinflation will remain indefinitely stalled.