Norwegian core inflation likely to have remained unchanged in October

Norwegian core inflation is likely to have remained on the upside to Norges Bank again in October. According to a Nordea Bank research report, core inflation is expected to have remained at 1.9 percent after the surprise rise in August. The central bank had anticipated a correction down and hence core inflation ended 0.3 percentage point above Norges Bank’s forecast.

“We expect the October core inflation unchanged at 1.9 percent. That means the gap to Norges Bank will remain 0.3 percent points. Consensus is 1.8 percent”, noted Nordea Bank.

The scenario is slightly mixed. If food prices follow the normal seasonal pattern year-on-year growth will drop and food prices pull down 0.1 percentage point in the projection. Meanwhile, prices on clothes and shoes normally increase further in October after the summer sales in line with the seasonal pattern, but in contrast to last year.

Airfares are a major uncertainty this time. The sampling period was increased last year so that more of the autumn school break was covered. That was possibly the reason why airfares increased 17 percent sequentially in October. Airfares should cover most of the autumn break in 2018 as well. Hence, airfares should rise solidly in 2018. Nevertheless, if the theory is wrong, inflation might fall back close to Norges Bank’s projection.

If the theory is right, inflation might come above Norges Bank and enough to provide a positive contribution to the rate path.

“We give more weight to growth figures and especially labour market figures. Last week’s rather sharp drop in registered unemployment is in line with our view for a continuing tightening of the labour market”, added Nordea Bank.