Norwegian inflation eases in April, Norges Bank likely to continue to hike

Norwegian inflation eased in April, while core inflation is slightly on the downside to Norges Bank’s forecast. On a year-on-year basis, core inflation came in at 2.3 percent as compared with April’s 2.6 percent. Consensus expectations were for 2.6 percent, whereas Norges Bank had expected 2.5 percent.

As anticipated, airfares dropped following the sharp rise due to Easter in April. It dragged down core rate by 0.15 percentage points. Food prices surprisingly dropped 0.9 percent sequentially pulling down core rate by another 0.15 percent.

Inflation is volatile and after being 0.3 percentage point above forecast in April, it is now 0.2 percent below. Running inflation is likely to give a small negative contribution to the “interests rate account”, noted Nordea Bank in a research report.

“But remember inflation is above target and capacity utilization above normal (positive output gap). That is an important reason why Norges Bank will continue to hike. And with NOK now being about 3 percent weaker than Norges Bank’s forecast for Q3 Norges Bank will most likely forecast inflation above target for the whole forecast period despite a somewhat weaker staring point. In the March forecast stronger NOK pulled inflation temporary slightly below target”, added Nordea Bank.