According to Erik Johannes Bruce, Research Analyst at Nordea Markets, Norway’s core inflation probably remained low in July and slightly below Norges Bank’s forecast, but this should not change the outlook for monetary policy and Norges Bank will hike rates in September.
Key Quotes
“We forecast core inflation at1.1 % y/y, unchanged from last month. Consensus and Norges Bank’s forecast is 1.2%. We would not give it much weight, but headline inflation could be as high as 2.8% up from 2.6% last month.”
“The development during the summer gives no reason for Norges Bank to change view on monetary policy.”
“Due to an import weighted NOK currently close to 2% weaker than expected by Norges Bank the summer news argue if anything for a higher rate path in September. In our view the July inflation figures should not change that conclusion even if our forecast is 0.1% points below Norges Bank’s forecast.”
“The reason why both consensus and Norges Bank’s forecast is for somewhat higher core inflation than in June is probably that the price cuts during the summer sale on clothes and shoes last year was extraordinary big. We however believe price cuts have been rather strong this year too and that might be the reason we are a bit on the low side compared to consensus.”
“The July figure could of course surprise. Inflation is volatile and especially the summer figures are hard to predict. As such, the August figure, out before the September rate path, will be more interesting. The big question is whether inflation will pick up to 1.5% in August as Norges Bank forecasts.”
“We think the case for higher inflation in August is strong with food inflation rebounding strongly due to very strong price cuts last year.”
“In our view the risk of Norges Bank not hiking in September is small and if anything there is a potential for a further upwards revision to the rate path. Not driven by inflation, but by the strong momentum in the economy and, as least so far, a weak NOK.”
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