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Fast Comment NorwayPreview: Manufacturing output in March and core inflation in April

  1. Manufacturing output probably rose sharply in March; we expect 1.5 percent
  2. CPI-ATE expected at 1.4 percent in April, up from 1.2 percent in March
  3. Norges Bank forecasts the CPI-ATE at 1.6 percent
Manufacturing output probably rose sharply in March
Next week, we will see figures for manufacturing output in March (due Tuesday) and, more importantly, figures for core inflation (CPI-ATE) in April (due Wednesday). Manufacturing output has been surprisingly weak so far this year. Output declined by 2.1 percent m-o-m in January. With a disappointingly small upward correction in February, at only 0.2 percent, there is scope for a negative quarterly reading in Q1. However, we believe the underlying pace is firmer than observed so far this year, and we anticipate output rose by 1.5 percent m-o-m in March. Still, this gives a negative q-o-q estimate, at -0.6 percent, for the first quarter of the year. This is in stark contrast to the final quarter of last year, when manufacturing output rose by 1 percent q-o-q. However, if we are broadly right about the March reading, the overhang to Q2 will be positive and we can still deem that the trend is positive. We note that sentiment indicators (the Business Tendency Survey and the PMI) are comfortably in expansionary territory, even though there has been some loss of momentum lately.
CPI-ATE expected at 1.4 percent in April; Norges Bank forecasts 1.6 percent
We expect the CPI-ATE rose to 1.4 percent in April, following 1.2 percent in March. However, our estimate is still below Norges Bank’s estimate of 1.6 percent. We note that the CPI-ATE fell well below expectations in March; Norges Bank expected 1.5 percent, which gives a forecasting error of 0.3 percentage points. At face value, this is a significant deviation relative to the Bank’s short-term estimates, but we believe that some of the deviation was simply related to the timing of the Easter holiday. To be more precise, food prices fell sharply this March, but we anticipate that these prices increased in April. Taken altogether with a substantial base effect (a decline in food prices one year ago), we expect the rebound in food prices to boost the April CPI-ATE reading significantly. On the other side of the coin, we believe that price inflation for air fares weighed on the CPI-ATE. We note that prices for air fares rose by a solid 17 percent m-o-m in April last year, as they were recorded in relation to the Easter holiday. This was probably not repeated this year, as the Easter holiday was celebrated in March instead. All told, we believe the CPI-ATE reading will show an increase again in April, although we do not expect it to snap back to Norges Bank’s near-term estimate due to prices for air fares.


Marius Gonsholt Hov

Senior Economist


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