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Fast Comment NorwaySharp drop in CPI-ATE; although neutral to the key policy rate

  1. CPI-ATE at 1.6 percent in October, sharply down from 1.9 percent in August and September
  2. We and consensus expected 1.8 percent
  3. But matching Norges Bank's estimate; neutral to the key policy rate
CPI-ATE at 1.6 percent in October, sharply down from 1.9 percent in August and September
Core inflation (CPI-ATE) fell sharply to 1.6 percent in October, following 1.9 percent in both August and September. Both we and consensus expected a drop in October, although more muted - to 1.8 percent. The key reason for this expectation was that October last year saw a record (monthly) gain, something which we did not believe was repeated this year. Whereas the direction was correct, the magnitude was larger than we had anticipated. More importantly, however, the downward correction has caused the CPI-ATE to exactly match Norges Bank’s short-term estimate. As such, the upside surprise to inflation seen so far has been wiped away. At present, the core inflation rate is neutral to the key policy rate path. Whereas today’s outcome was weaker than we had anticipated, the latest outcome confirms our assessment that the inflationary pressure is weaker than suggested by a couple of elevated prints during the autumn. Food prices have in particular contributed to elevated CPI-ATE changes this autumn, but this was corrected in October. Prices for food as well as transport were the key factors behind the inflation drop in October.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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