Norway’s August inflation slows slightly on lower airfares, Norges Bank to remain on hold

Norwegian consumer price inflation slowed slightly in August, mainly due lower airfares. On a sequential basis, Norway’s CPI inflation decelerated to 0.5 percent, while on a year-on-year basis, it came in at 4 percent, 0.4 percentage points lower from July.

Norway’s core inflation slowed to 3.3 percent year-on-year in August, from 3.7 percent year-on-year recorded in July. This is a bit lower than consensus expectations of 3.4 percent; however, it is 0.5 percentage points to 0.6 percentage points above Norges Bank’s projection of 2.63 percent.

The three consumer groups - food clothes and airfares – are always uncertain. Food and cloths prices dropped more or less as normal in August; however, airfares dropped much more than usual, resulting in slightly lower than expected inflation print for August, noted Nordea Bank in a research note. Airfares fell 25.8 percent in August.

This is the third consecutive month that Norway’s inflation has come in much higher than projected, and thus the Norwegian central bank will have revise up their inflation forecast. This would also revise up their projection of nominal wage growth for 2017.

“The pass through from the weak exchange rate has been higher than expected and is the main reason why inflation has overshoot Norges Banks forecasts”, added Nordea Bank.

Given August inflation figure, the central bank is expected to remain on hold in September.