Norway posts higher inflation

Norges Bank will cut rates. Core inflation in May came in at 2.4 % y/y. Consensus forecast was 2.3% while Nordea was 2.5%, notes Nordea Bank. Today's figure was much as we had expected. Year on year growth on air fares went from -21% to +5% pulling up core inflation by about 0.3% points. Apart from this price growth on food, clothes and culture all pulled up. The reason why core still did not reach our 2.5% was a rather sharp drop in prices growth on furniture, household equipment etc. (especially textiles), but y-o-y growth is still a healthy 3.9%.

"Today' figure should have no impact on the June cut which is clearly signalled. The gap diminished however compared to last month and the gap should have a marginal downward effect on the coming rate path", says Nordea Bank.

Inflation was temporary low in April and will probably remain fairly high in most of 2015 partly as a lagged effect of lasts year's NOK weakening. However when the effect vanish and the effect of lower wage growth and lower capacity utilization takes hold inflation should fall sharply and well below Norges Bank forecast from March. That argues against believing that the long signalled June cut will be the lasts.