Norwegian inflation surprises on the downside
By Laurids Rising, Analyst, LR@mamoadvisory.com, +45 22880457
Today we got inflation numbers for Norway in April.
April Core inflation (CPI-ATE) was 1.7%y/y in April – slightly down from 1.8%y/y in March (seasonally adjusted) and below consensus expectations.
On a month-on-month basis CPI-ATE pretty much grew in line with the underlying trend in recent months.
Inflation set to decline further in coming months
On the back of the latest inflation data we have updated our inflation forecast for Norway. Inflation will likely continue to decline in the coming months. However, this is due to a quite strong base effect following the high inflation rates in 2016.
Underlyingly we have in fact seen a stabilization in the monthly growth rate of Norwegian consumer prices since the start of 2017.
Furthermore, our monetary indicator for Norwegian monetary conditions (See our Global Monetary Conditions Monitor) is presently slightly below zero, indicating that (core) inflation in the medium-term should return close to Norges Bank’s 2.5% inflation target.
Consequently, we see core inflation picking up starting in the autumn and continuing to increase in 2018 and 2019.
We now forecast Norwegian core inflation at 1.4% this year and at 1.6% and 2.1% in 2018 and 2019 respectively.
Monetary policy implications
Even though our forecast for core inflation shows that Norges Bank is likely to continue to undershoot its inflation target in the coming years, inflation should nonetheless converge towards the 2.5% inflation target.
We therefore do not see a need for major changes in Norges Bank’s monetary policy stance. This is contrary to what we see in other commodity exporting countries like Canada and Australia where monetary conditions are too tight.
Read more in Global Monetary Conditions Monitor
If you want to read more about our views on Norwegian monetary policy see our monthly publication Global Monetary Conditions Monitor where you also can read about monetary policy in 24 other countries and get inflation forecasts for these. See more here.