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Fast Comment NorwayCore inflation misses Norges Bank's forecast

  1. CPI-ATE down to 2.2% in July, burdened by domestic factors
  2. Core inflation trending downward
  3. Norges Bank will have to call off planned policy rate hike(s), in our view
CPI-ATE down to 2.2% in July, burdened by domestic factors
As we expected, core inflation, as measured by the 12-month growth rate in the CPI-ATE, came in at 2.2 percent in July, down from 2.3 percent in June. The consensus expectation was also for 2.2 percent, while the central bank had 2.4 percent. Core inflation in July was burdened by domestically produced goods, while imported goods inflation provided support. While the deviation is not large (0.2 percentage points in June and July), core inflation has now missed Norges Bank’s forecast two months in a row.
Core inflation trending downward
Core inflation (CPI-ATE) has dropped notably over the past months, after having peaked at 2.7 percent in March. The details reveal that the effects of the past weakening of the NOK have been wearing off, pulling down import price inflation. In addition, price inflation for domestically produced goods and services has fallen from its peak, with the trend continuing in July.
Norges Bank will have to call off planned policy rate hike(s), in our view
When it comes to Norges Bank and monetary policy, the July inflation numbers add to a string of other Norwegian data that have come in on the weak side of the central bank’s expectation since its June meeting. In addition, global risk factors have intensified. Norges Bank increased the policy rate to 1.25 percent in June, and in the policy rate trajectory, there is a likelihood of around 70 percent that the policy rate will be increased to 1.5 percent in September. Our view is that Norges Bank will have to cancel its planned 1-2 further interest rate hikes owing to a more sombre outlook than the central bank had expected.

 


Source: Macrobond


Source: Macrobond Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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