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CPI-ATE clearly undershoots expectations in January

  1. CPI-ATE at 1.1 percent in January, down from 1.4 percent in December
  2. Clearly weaker than Norges Bank's estimate of 1.4 percent
  3. Air fares and clothing and shoes pulled down the y-o-y rate
CPI-ATE at 1.1 percent in January, down from 1.4 percent in December
Core inflation, as measured by the CPI-ATE, fell to 1.1 percent y-o-y in January, down from 1.4 percent in December. The outcome was below our forecast of 1.3 percent, and clearly below Norges Bank and consensus at 1.4 percent and 1.5 percent, respectively. As expected, air fares pulled CPI-ATE growth down, and pulled down the y-o-y rate by approximately 0.1 percentage point. The negative contribution was expected as air fares pulled up the CPI-ATE by 0.3 percentage points in December. Also clothing and shoes pulled down CPI-ATE growth in January, 0.2 percentage points y-o-y. This was somewhat more surprising due to the large imported component in this item. Given the weakening of the NOK over the past six months, we would expect to see a positive boost from the NOK to items with a high degree of imported content. Overall, the January figures underline that inflationary pressure is still weak. The deviation in the CPI-ATE result, relative to Norges Bank's estimate, was large enough to be significant, but the central bank will not conclude whether inflation has been weaker until after receiving the February print. As the central bank expects inflation to keep rising in February, the leap up to its expectation of a CPI-ATE rate at 1.7 percent in February now looks increasingly difficult to achieve. We expect the exchange rate to give a positive inflationary impulse down the road, but likely one that will be relatively benign and short-lived. Without a further and pronounced weakening of the NOK exchange rate, which we do not expect, the inflationary effect of the currency weakening will be much smaller than what was seen in 2015-16. Summing up, overall inflationary pressure remains relatively tame, with modest wage growth and still negative capacity utilisation at the firm level. We maintain our view that the CPI-ATE will hover well below its target for the foreseeable future.


Source: Macrobond


Halfdan Grangård

Senior Economist


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