Norwegian inflation likely to slow further in 2017, says Nordea Bank

Norwegian inflation has decelerated quite further than anticipated in the past four months. It is expected to fall further. After peaking at 3.7 percent year-on-year in July, core inflation has decelerated to 2.6 percent in November, which is over half a point less than Norges Bank’s projection in the September monetary policy report, noted Nordea Bank in a research report.

It mainly imported inflation that has decelerated unexpectedly. Domestic inflation has come in quite in line with expectations, remaining just over 2.5 percent year-on-year. Thus we believe that the underlying picture has altered slightly and that the pass-through from the exchange rate to import prices has taken place more quickly than anticipated, stated Nordea Bank.

The underlying price drivers, such as lower wage growth and higher productivity growth, are expected to dampen domestic inflation. Also, a gradually higher oil price is likely to result in a slightly stronger krone, stated Nordea Bank. Thus import prices are anticipated to decline further.

“We still believe that core inflation has peaked and will slow during the year, approaching 2 percent at the end of 2017”, added Nordea Bank.

Higher corporate earnings and lower employment indicate towards higher levels of wage growth. But recent surveys show that wage expectations among both employers and unions are slight lower than expected.

“We have revised down our wage growth forecast for 2017 to 2.8 percent”, said Nordea Bank.