Norwegian inflation likely to have decelerated in July

Norwegian inflation is expected to have decelerated sharply in July; however, it still continues to be above Norges Bank. According to a Nordea Bank research report, Norway’s core inflation is expected to have come in at 1.1 percent year-on-year, down from 1.6 percent last month. Consensus expectations is for 1.2 percent, while Norges Bank’s projection from the June monetary policy report is 0.8 percent.

July is usually a month with huge, but variable, changes in prices on several consumer groups, making the projection particularly uncertain. Still, there are good arguments for significantly lower inflation than in June. Food prices are usually adjusted in July; however, past years’ prices have been lifted more than normal. This appears to be partially a reflection of the rather sharp NOK weakening from mid-2013 to mid-2016, making imported foodstuffs more expensive, stated Nordea Bank. The price adjustment should be more moderate in July since NOK has appreciated slightly.

Moreover, airfares rose strongly in connection with the beginning of the school holiday. After such a rise, they usually fall in July. Last year airfares rose in July.

Even if inflation falls to 1.1 percent, it would be 0.3 percentage point above Norges Bank’s projection as in June. That is a big enough gap to have an effect on the September rate path.

“Even if inflation should remain ¼ – ½% points above forecast, it is still way below target, and a hike is still far away”, added Nordea Bank.

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