Norwegian inflation likely to have come in below Norges Bank’s projection in May

Norwegian inflation is expected to come in on the downside to the central bank’s projection for the month of May. According to a Nordea Bank research report, inflation is most likely to stay on in the downside to expectations, but is unlikely to trigger a rate cut. Core inflation, for the month of May is expected to have slowed to 1.6 percent year-on-year from April’s 1.7 percent, noted Nordea Bank. Consensus expectations are for 1.5 percent, whereas Norges Bank’s projection from the March monetary policy report is 1.9 percent.

Food prices and airfares are likely to have impacted the May inflation figure. Food prices are expected to have recovered after the solid Easter induced decline in April. It raises the year-on-year growth by around 0.3 percentage points. Meanwhile, airfares are expected to have fallen after the sharp rise in April. The timing of holidays in May 2017, as compared to last year would add to the decline in airfares, which pull down core inflation by 0.4 percentage points.

The main scenario is that core inflation has sharply decelerated as importers are close to done with adjusting prices after the sharp weakening of NOK. This illustrates not just why imported consumer goods growth dropped from 4.6 percent last summer to current 1 percent, but it has also added to lower price growth on domestic goods.

“For domestic inflation we expect a further slowdown reflecting the last year’s slowing wage growth. We see core inflation hovering between 1 percent and 1¼ percent in the second part of 2017 when Norges Bank forecasts inflation close to 1½ percent”, added Nordea Bank.