Norwegian core inflation likely to have accelerated slightly in May

Norwegian inflation is likely to have stayed on the low side to Norges Bank in May; however, strong growth signifies that the central bank will still hike in September, noted Nordea Bank in a research report.

According to Nordea Bank, Norway’s core inflation is expected to have accelerated to 1.4 percent year-on-year from April’s 1.3 percent. However, it would still be lower than the central bank’s forecast of 1.6 percent.

May figure is mostly about food prices and airfares. Food prices had dropped sharply in April 2017 due to Easter, while they had rebounded strongly in May. There is no Easter effect this year and thus food prices are expected to have risen less on a sequential basis.

Meanwhile, airfares were high during last year’s Easter and fell sharply in May. This year airfares probably rose strongly in May because of the timing of May holidays. Airfares pull up year-on-year growth in core inflation by 0.3 percentage points.

“Our forecast implies core inflation 0.2 percent points below Norges Bank’s forecast after being 0.3 percent points below both in March and April. Inflation will still give a negative contribution to the rate path, but a rather modest one”, stated Nordea Bank.

While inflation most likely continues to be slightly on the downside to Norges Bank, figures for growth and capacity utilization has been quite consistent with the central bank’s view.

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