Norway’s consumer price index surprises on the upside in June; inflation likely to slow in H2

Norway’s consumer price index rose 0.6 percent in June month-on-month, whereas on a year-on-year basis, the consumer price inflation was 3.7 percent in June, a rise of 0.3 percentage points from May, stated Statistics Norway. The month-on-month rise was partially because of 1.1 percent increase in food prices, especially fruits and vegetables.

Usually, prices of electricity including grid rent usually drop from May to June. However, this year, the prices have increased 2.8 percent. Moreover, auto diesel prices increased 6.7 percent month-on-month in June, whereas petrol prices increased 3.3 percent, according to Statistics Norway. Inflation rose 3.7 percent year-on-year, with higher electricity prices contributing largely.

Core inflation, on a year-on-year basis, came in at 3 percent in June as compared to 3.2 percent in May. Lower air fares were mainly responsible for the slowdown in inflation. This was expected because of timing of holidays. The consensus expectation was for 2.7 percent.

Most of the components have surpassed expectations, preventing inflation from slowing as much as the market had anticipated. The upside surprise in inflation was wide spread. Clothing and footwear prices rose 0.4 percent, as compared with a decline of 0.7 percent in June 2015.

Norway’s June figure does not alter the view. The Norwegian inflation is likely to decelerate. There is likelihood for inflation to slow in the second half of 2016, when the impact of weak NOK wanes, noted Nordea Bank in a research report.