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Fast Comment NorwayCore inflation no longer an argument for lifting the shorter-end of the rate path

  1. The CPI-ATE fell sharply in May (2.3 pct), well below expectations (2.6 percent)
  2. We still believe NB will hike its policy rate next week, but...
  3. ...core inflation no longer an argument for lifting the shorter end of the rate path
Core inflation well below expectations: 2.3 pct in May, expected 2.6 pct
The CPI-ATE fell sharply to 2.3 percent in May, down from 2.6 percent in April. The outcome was well below expectations; both we and consensus expected 2.6 percent in May, whereas Norges Bank had forecast 2.5 percent. The details reveal that the downturn was broad based; price inflation for both imported goods as well as domestically produced goods and services fell from April to May. The signals from the inflation data have been highly uncertain throughout March and April, as the late timing of the Easter Holiday have distorted the data. Thus the May-reading was important to assess the true state of the inflationary pressure. Following surprises to the upside in both March and April, the weak outcome for May implies the CPI-ATE is no longer an argument for lifting the shorter-end of the key policy rate path. At best, Norges Bank may conclude that the CPI-ATE has “varied around” its short-term estimates. We still believe that Norges Bank will hike its policy rate at the upcoming June-meeting. But in isolation, the latest weak outcome for the CPI-ATE is – at best, neutral to the further outlook for the key policy rate path.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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