Norwegian core inflation likely to have accelerated slightly in January

Norwegian inflation is expected to have come in higher in January. According to a Nordea research report core inflation is likely to have accelerated to 2.6 percent year-on-year in January from 2.5 percent in December. Norges Bank projects inflation to reach 2.94 percent, according to its December monetary policy report.

Food prices are expected to be in focus again. Prices of food dropped sharply in December 2016 on a year-on-year basis. However, it is not just the prices of food that make the figures for January uncertain. Moreover, seasonal sale on many items and changes to several administrative prices adds to the uncertainty. Furthermore, several rents are regulated in January.

If the forecast comes true, inflation in January would be 0.3 percentage points below the central bank’s projection after a gap at 0.4 percent points in December. However, it does not matter much to the central bank for several reasons. The Norges Bank had ignored the evidently subdued outlook for inflation in December when it presented an almost identical rate path as the one in September, stated Nordea Bank. Also, lately, inflation has been volatile. Norges Bank projects inflation to reach 2.55 percent in February.

“Headline inflation will drop significantly due to lower growth in electricity prices, from 3.5 percent to 2.8 percent according to our forecast. That could have importance both for household real income but probably also for the coming wage settlement”, added Nordea Bank.