Core inflation in Norway likely to have come in at 3 pct in July, unchanged from June

The upcoming inflation data for Norway for the month of July is expected to show that the nation’s core inflation is likely to peg at 3 percent, unchanged from June, said Nordea Bank in a research report. Consensus projection is for a rise of 3.1 percent, whereas Norges Bank projected 2.86 percent in its June Monetary Policy Report.

In the previous month, inflation in Norway surprised on the upside coming in 0.3 percentage points above Norges Bank’s predictions. The major question is whether the gap lasts, in which case running inflation would be an argument for Norway’s central bank to delay the September cut, noted Nordea Bank.

“If we are right and the gap diminishes to 0.1 percent - 0.2 percent, running inflation should have only a marginal effect on the rate view. If inflation ends up at consensus on the other hand, it will contribute to a lift in the rate path”, added Nordea Bank.

There is a higher level of uncertainty for July figures due to huge and varied price changes on consumer groups such as clothes and food. In July, usually food prices increase as retailers adjust prices on several items. Prices are expected to have risen 1.5 percent on sequential basis, according to Nordea Bank. This is a bit on the downside as compared to 2015’s 1.9 percent; partially because 2016’s agricultural settlement should have just a slight impact on prices.

Prices on shoes and clothes were strongly lowered in July during the seasonal sale. Airfares, in July 2015 had dropped quite severely and had formed a high level in June 2016. The decline in July 2016 is likely to be more moderate, pulling up core inflation, stated Nordea Bank.