Norway’s headline inflation rises on increased electricity prices in October, core inflation unchanged

Norway’s consumer price inflation accelerated in sequential as well as in year-on-year terms. The CPI index was up 0.5 percent in sequential basis in October, as compared with 0.3 percent rise seen in September. The rise in inflation was mainly driven by a strong rise in electricity prices, stated Statistics Norway. Grid rent was up 8.8 percent, the second highest month price rise in 2016. Increase in electricity prices can be illustrated by less rain than normal, which increased prices of coal in Europe.

Clothing prices rose 2.3 percent in sequential terms in October, mainly due to continued increase in prices after the summer sales, and arrival of new winter stock in stores. Rises in price of furniture, airfares to international destinations and newspapers also added to the rise in CPI in October.

On the other hand, lower food prices were a drag on inflation. Food prices dropped 0.6 percent sequentially. This signifies that prices of food dropped for the third straight month. Prices of both diesel and petrol dropped 1 percent sequentially in October.

On a year-on-year basis, consumer price inflation in Norway rose 3.7 percent, driven by higher electricity prices. Yearly increase in clothing prices came in at 4.8 percent, whereas prices on recreational and cultural services rose 5.6 percent in the same period. Lower fuel prices were a drag on the year-on-year CPI rise.

Norway’s core inflation, as measured by the CPI-ATE, remained unchanged from September’s level at 2.9 percent in October.

Norway’s inflation numbers were quite consistent with expectations and underpins the view that the earlier rise in inflation was temporary and that inflation has peaked, noted DNB in a research note. Core inflation continues to be slightly below Norges Bank’s projection after declining more than expected in September; however, this would barely impact the interest rate decision in December.

The Norwegian central bank projects inflation to ease in the future as the impact from the krone depreciation is phased out. The Norges Bank is expected to keep its policy rates unchanged in December, with housing prices still continuing to increase, said DNB.