Norwegian core inflation accelerates above expectations in January, to contribute positively to March rate path

Norway’s core inflation came in above expectations in January. On a year-on-year basis, the core inflation accelerated sharply to 2.9 percent from December’s 1.8 percent, as compared with consensus expectations of an acceleration to 2 percent and Norgest Bank’s 2.2 percent. The headline consumer price inflation came in at 1.8 percent year-on-year, a slight acceleration from December’s 1.4 percent. Meanwhile, on a sequential basis, the inflation came in at 0 percent from December’s -0.3 percent.

Delving into subcomponents, almost all subcomponents pulled up core inflation. Most significant contributions were from furniture (0.3 percentage points), food prices (0.24 percentage points), lower apparel discounts (0.17 percentage points), transportation (0.17 percentage points), culture (0.10 percentage points) and other goods and services (0.10 percentage points).

Meanwhile, the produce goods rose 2.4 percent year-on-year, while imported goods rose 2.7 percent. The latter implies that the effects of the considerably softer NOK finally have shown up in the inflation figures, said Nordea Bank in a research report. Moreover, services inflation came in at 3.4 percent year-on-year, which is consistent with last year’s wage growth. Inflation is expected to stay above Norges Bank’s forecast in the coming period.

“The big question is whether the 0.7 percentage points gap will remain. We think most of the factors which pulled core inflation up this month are one-offs and should moderate going forward. This suggests inflation will fall back towards the 2.0 percent target. Still, inflation will remain above Norges Bank’s forecast in the period ahead and this will give a positive contribution to the March rate path. But this effect alone should not prompt a hike given that most other data has surprised on the downside, with domestic growth figures a tad on the weak side and lower oil prices”, added Nordea Bank.