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Fast Comment NorwayPreview: Core inflation in March (Tuesday) and manufacturing output in February (Monday)

  1. CPI-ATE probably rose to 1.5 percent in March from 1.4 percent in February
  2. In line with central bank estimates
  3. Manufacturing output likely returned to growth in February
CPI-ATE probably rose to 1.5 percent in March from 1.4 percent in February
Figures for core inflation (CPI-ATE) in March are due next Tuesday. Ahead of the monetary policy meeting in March, CPI-ATE sprung a downside surprise on Norges Bank yet again leading to another reduction of near-term estimates. According to Norges Bank’s updated projections, CPI-ATE will rise only modestly over the next few months from 1.4 percent in February to 1.5 percent in March and to 1.6 percent in April and May. However, CPI-ATE is expected to fall back a little in June to 1.4 percent. The overall picture is that CPI-ATE will hover around 1.5 percent in the near term, according to Norges Bank. This assessment appears reasonable, in our view. Over the past year, the monthly change in CPI-ATE has been in line with its historical average. If we extrapolate from this recent trend, the outlook for CPI-ATE, measured as an average, would be closer to 1.2 percent for the next few months, rather than the 1.5 percent Norges Bank has forecast. However, the weakening of the NOK exchange rate toward the end of 2017 will probably start to show in higher imported inflation. In isolation, this should give a near-term boost to CPI-ATE, with March a natural starting point due to seasonality. This is precisely what Norges Bank has taken into account. Note that the timing of the Easter holiday could, in principle, have lifted CPI-ATE further, as the holiday was in March this year versus April last year. A likely key factor would have been prices for airfares, which tend to rise during the holiday. However, with the holiday late in the recording period, this was probably not an issue this time. To cut a long story short, the expectation behind higher CPI-ATE in March is higher inflation for imported consumer goods. Like Norges Bank, we believe CPI-ATE rose to 1.5 percent in March from 1.4 percent in February.
Manufacturing output likely returned to growth in February
Manufacturing output fell surprisingly sharply in January (-2.2 percent), breaking a four-month streak of monthly gains. However, we see this as volatility and not a break in the positive trend. The outlook for the manufacturing sector looks robust, with solid global growth, a still weak NOK exchange rate, and expectations of a rebound in petroleum investments this year. Even though the latest PMI readings have moderated, they still lie comfortably in expansionary territory. We believe manufacturing output rose by 1.5 percent m-o-m in February (S.A).


Marius Gonsholt Hov

Senior Economist


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