Norwegian core inflation likely to have accelerated to 2.4 pct in June, Norges Bank to hike rate in September

Norwegian inflation figures for the summer are unlikely to prevent the Norges Bank from providing a clear signal of a September hike at the in-between meeting in mid-August, said Nordea Bank in a research report.

Since the last Norges Bank’s meeting, there have not been many domestic figures. However, unemployment figures and the latest housing prices were on the solid side to central bank’s forecast.

“Add the truce in the “trade war” and a NOK still somewhat on the weak side to the forecast and news so far clearly points to a September hike. And of more immediate interest, a clear signal of a September hike on the in-between meeting in August. A signal which should be hawkish to the market”, said Nordea Bank.

Nevertheless, there will be two inflation figures before the August meeting. According to Nordea Bank, core inflation is likely to have remained in the range of 2.25 percent to 2.5 percent, which is close to Norges Bank’s forecast of 2.4 percent for both months. However, the summer figures are tricky. In particular, July has surprised strongly before. Nevertheless, an eventual downside surprise should be quite solid for it to make Norges Bank start doubting a September hike.

“Let’s turn to the June figure out 10 July at 08.00. In line with Norges Bank, we expect core inflation to increase from 2.3 percent to 2.4 percent. The main reason for the rise is food prices which normally increase in June and probably more this June than last year. Main suspect for eventual surprises is clothes and shoes due to the timing of the summer sale and, as always, airfares”, said Nordea Bank.

Furthermore, headline inflation is likely to fall below core due to falling electricity prices. It has no direct effect on interest rates, Norges Bank focus on core. Headline inflation, which is close to 2 percent compared to above 3 percent in the second half of last year, will give a boost to real wages and therefore consumption, added Nordea Bank.