Norwegian core inflation accelerates above Norges Bank’s forecast in August

Norwegian core inflation came in above Norges Bank’s forecast in August. Core inflation accelerated to 1.9 percent year-on-year from 1.4 percent last month, as compared with consensus expectations of 1.7 percent and Norges Bank’s forecast of 1.5 percent.

As anticipated, food prices pulled up core inflation on a year-on-year basis by dropping less than last year on a sequential basis. It contributed 0.3 percentage points to the core rate. Clothes and shoes mainly contributed for the higher inflation. Prices recovered earlier than anticipated and normal after the summer sale. However, that argues for more moderate increase in September and might be temporary. Nevertheless, there was one major downside surprise. Prices of furniture dropped sharply and more than normal in August that might argue for a recovery next month.

According to a Nordea Bank’s research report, core inflation is expected to be in a range between 1.5 and 2 percent in the second half of 2018.

“Based on Norges Bank’s reaction function described in the interest rate account in the Monetary Policy Reports it could argue for a next hike already in December. However the Board might think this too aggressively preferring to raise the path further out with more hikes in 2019/ 2020”, added Nordea Bank.