(Bloomberg) -- Norway’s underlying inflation rate declined to its lowest level in 1 1/2 years, reviving expectations that the country’s central bank could begin cutting interest rates earlier than planned.

The core inflation rate, which excludes volatile items such as energy, fell to 4.9% last month, the lowest level since August 2022, according to a statement by the statistics office on Monday. That was below the 5.3% median forecast by analysts, while Norges Bank had projected a 5.5% pace.

Along with the slowing headline price growth, the data suggests Norway is following its regional peers in seeing a more sustained decline in inflationary pressures. While the Nordic nation is still expected to be among the last rich nations to begin an easing cycle, some analysts said the figures suggest Norges Bank could start sooner than in the autumn that they have indicated so far.

“This is very good news, and we also note that this time it was the price increase on Norwegian-produced goods and services that decreased significantly,” Sara Midtgaard, a senior economist with Svenska Handelsbanken AB, said. “The market has begun to look more at the possibility of a cut from Norges Bank as early as June. We can imagine that these expectations will be reinforced after today’s inflation figures.”

The krone traded slightly lower following the news, down 0.1% at 11.4190 versus the euro at 9:27 a.m. in Oslo. Traders in overnight swaps now price in a 49% chance of a key rate cut by the June meeting, and a 80% likelihood of a cut by August.

Among the key drivers of slowdown, food prices fell 0.7% on the month — the first decline for February since 2001, Espen Kristiansen, section leader at Statistics Norway, said in the statement. He cited price-freeze campaigns by grocery chains and their stated plans to move away from the Norwegian system of negotiating pricing changes with suppliers in February and July that spurs price gains those months. Prices of ferry transport and furniture also helped to stem growth.

Norwegian rate setters, who are due to meet later this month, in January paused one of the longest strings of hikes among major currency jurisdictions. They held the benchmark rate at a 16-year high of 4.5% and repeated the need for a tight policy stance “for some time ahead.”

Norges Bank Governor Ida Wolden Bache cautioned last month that easing monetary policy too soon could weaken confidence in the central bank’s ability to tackle inflation and entail “substantial” costs, echoing comments by European Central Bank President Christine Lagarde.

The headline inflation rate also slowed to 4.5%, below the analysts’ forecast of 4.7% while the central bank had projected 5.3% pace.

Dane Cekov, a senior strategist with Nordea Bank Abp, said he still expects Norway’s inflation to remain “too high for comfort for quite a while,” deterring the central bank from signaling sooner rate cuts.

“We believe that Norges Bank is unlikely to reduce rates before December,” he said, citing a strong economy, uncertain inflation outcomes and “expected rate cuts abroad being postponed.” 

He places less emphasis on “lower inflation and a somewhat stronger krone than expected,” which “point to a sooner first rate cut than December 2024.”

In neighboring Denmark, inflation slowed to 0.8% in February, from a rate of 1.2% a month earlier, driven by price drops on sugar products, jam and chocolate, Statistics Denmark said on Monday. The country’s core inflation rate fell to 1.7%, the lowest since late 2021.

--With assistance from Joel Rinneby and Sanne Wass.

(Updates with details, analyst comments.)

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