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Fast Comment NorwayCore inflation far below Norges Bank’s estimates

  1. CPI-ATE at 1.2 percent, vs. Norges Bank 1.6 percent
  2. We still believe Norges Bank will hike its policy rate in September...
  3. ...but the isolated effect of softer inflation is for a lowering of the rate path
CPI-ATE at 1.2 percent, vs. Norges Bank's 1.6 percent
Core inflation, as expressed by the CPI-ATE, has again fallen significantly below Norges Bank’s estimates. The CPI-ATE fell to 1.2 percent in May, down from 1.3 percent in April. Norges Bank had anticipated 1.6 percent. To be fair, market expectations were for a rise in the y-o-y rate in May; consensus was for 1.4 percent, whereas we had anticipated 1.5 percent. Thus the general expectation was for a slight reduction of Norges Bank’s forecasting error. Instead, the CPI-ATE fell even further below. Digging a bit into the details, prices for air fares contributed, in isolation, to a rise in the y-o-y rate. The direction was as expected, but the effect was much more muted than what we had foreseen. Furthermore, prices for food were almost unchanged in May. Given the solid increase 12 months ago, the annual rate for food prices fell sharply in May; this was the key component giving a lower reading for the CPI-ATE total. To cut a long story short, the CPI-ATE continues to sit uncomfortably below Norges Bank’s estimates. This is not an unusual pattern to see. Since September 2016, the CPI-ATE has averaged around 0.3 p.p. below Norges Bank’s short-term estimates. Needless to say, this has been the case also this time. Whereas we still believe Norges Bank will hike its policy rate in September, on the back of a strengthening economy, the isolated effect of the weak CPI-ATE is for a lowering of the policy rate path.


Marius Gonsholt Hov

Senior Economist


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