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Fast Comment NorwayCore inflation expected to be slightly lower in June (due Tuesday)

  1. We estimate the CPI-ATE at 1.1 percent in June, down from 1.2 percent in May
  2. In line with Norges Bank
  3. The usual caveat: CPI-ATE is volatile throughout the summer months.
We estimate the CPI-ATE at 1.1 percent in June, down from 1.2 percent in May
Core inflation, as measured by CPI-ATE, has yet again surprised on the downside. It fell to 1.2 percent in May, which was 0.2 p.p. below consensus and 0.4 p.p. below Norges Bank. Generally speaking, CPI-ATE has since the autumn of 2016 trended below the central bank’s short-term estimates and the latest negative surprise caused Norges Bank to lower its near-term estimates again. Norges Bank is now forecasting CPI-ATE at 1.1 percent in June (lowered from a previous estimate of 1.3 percent). In our view, the Bank’s latest estimate appears to be reasonable. We do note, however, that the monthly change was unusually large in June last year; at 0.50 percent m-o-m; the figure matched the highest June reading observed since 2003. However, given the relatively weak outcome for the recent months of this year, we also believe prices rebounded solidly this June (in m-o-m terms). We thus expect a monthly change of 0.4 percent, which should give an annual rate of 1.1 percent, slightly down from 1.2 percent in May. The usual caveat: CPI-ATE is volatile throughout the summer months. The price index for air fares is the obvious candidate when it comes to causing temporary surprises. We thus recommend taking an average of June and July before jumping to conclusions. However, the upshot is that we generally agree with Norges Bank’s short-term estimates this time. It would take a severe negative surprise to put a question mark over the rate hike in September. Still, as stated, we believe the average performance of CPI-ATE throughout this summer will be in line with Norges Bank’s expectations.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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