Norwegian core inflation decelerates slightly in May

Norwegian inflation came in much lower than anticipated in May. Core inflation decelerated slightly to 1.2 percent year-on-year from 1.3 percent last month. Consensus expectations were for 1.4 percent, while the central bank had expected 1.6 percent.

The main reason why inflation was on the downside to the projection was that airfares dropped in May on a sequential basis. It is still up year-on-year but much less than anticipated. Moreover, most consumer groups were a bit softer than anticipated. The only considerable upside surprise was prices on shoes and clothes which recovered more than expected.

Inflation has been evidently softer than central bank’s expectations. It is still some component which is believed to recover such as clothes and as always it is much noise with airfares and food, noted Nordea Bank in a research report. Core inflation outside food airfares and clothes is stable at 1.7 percent.

“We are hesitant to change our view that inflation will rebound in the autumn. But for now Norges Bank will conclude that inflation is on downside. It will give a negative contribution to the coming June rate path”, stated Nordea Bank.

However, growth and capacity utilization figures are as expected and oil and housing prices are on the upside. The Norges Bank is expected to hike its key interest rate in September and the June report is likely to provide a high possibility for a September hike, said Nordea Bank.

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