Norway: Core inflation on the downside to Norges Bank’s forecast – Nordea Markets

Erik Johannes Bruce, analyst at Nordea Markets, points out that the Norway’s core inflation in May came in at 2.3% y/y compared to 2.6% in April and is now somewhat on the downside to Norges Bank’s forecast.

Key Quotes

“Consensus was 2.6% and Nordea was 2.4% while Norges Bank was 2.5%.”

“Inflation is volatile and after being 0.3% point above forecast last month it is now 0.2% below. We do not think Norges Bank will make much out of that, but running inflation will probably give a small negative contribution to the “interests rate account” (changes in the rate path compared to March). 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% 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.”