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Fast Comment NorwayCore inflation continues to run below NB’s estimate

  1. CPI-ATE down to 2.1 percent in August; below expectations
  2. We and consensus expected 2.2 percent, whereas Norges Bank had 2.3 percent
  3. The deviation is significant; in isolation, it pulls down the key policy rate path
CPI-ATE down to 2.1 percent in August; below expectations
Core inflation, as measured by CPI-ATE, fell to 2.1 percent in August, following 2.2 percent in July. The outcome was a little below expectations, as both we and consensus had anticipated 2.2 percent in August. Norges Bank had 2.3 percent. As such, the deviation has averaged around -0.2 p.p. over the past three months, which should be deemed as significant (i.e on the margin), as it pulls down the key interest rate path. That assessment is strengthened by the outcome for August being close to 2.0 percent (rounding made it to 2.1 percent). Looking at the details, price inflation for imported goods has fallen in line with Norges Bank’s forecasts. But prices for domestically produced goods and services have been systematically weaker than expected. One other important fact is that price inflation for air fares, a notoriously volatile component, has remained elevated over the past few months. Stripping out the most volatile components, such as air fares and food prices, core inflation has trended well below the inflation target. All told, CPI-ATE has fallen sharply from its peak of March (2.7 percent) and overall inflationary pressures have proved to be weaker than expected by Norges Bank. As stated, the deviations have been large enough to offer some downward pressure to the key policy rate path.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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