Norway’s core inflation likely to have accelerated in December – Nordea Bank

Norwegian inflation is expected to have come in slightly above the central bank’s forecast in December. According to a Nordea Bank research report, Norway’s core inflation is likely to have accelerated to 1.4 percent year-on-year from 1 percent in November. Norges Bank’s expects core inflation to have reached 1.3 percent.

There are some arguments for higher core inflation in December. In the December of 2016, solid price competition on Christmas-related foodstuff drove down food prices by close to 3 percent sequentially. Based on media reports, prices cuts began later in 2017 and the price cuts were not that strong. Thus prices are expected to have dropped by just 1.4 percent sequentially, pulling up core year-on-year growth by 0.2 percentage points.

Airfares are also expected to have risen 0.2 percentage points, partially due to weak sequential growth in 2016, but also due to changes in the way Statistics Norway measures airfares. Airfares now cover prices in four weekends of the month as compared to two earlier. This signifies that the Christmas weekend would be included for the first time in the December figure. This will increase prices, stated Nordea Bank.

The NOK might have appreciated slightly, but inflation is pretty close to the central bank’s forecast for it to have any solid effect on rates. Risks to the projections are balanced. But the uncertainty reflects temporary factors.

“We believe Norges Bank will continue to signal a 2018 hike and possibly raise the rate path in March. The main challenge will be NOK. If NOK strengthens too much on hawkish signals, it will force Norges Bank to remain on hold in 2018”, added Nordea Bank.

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