Norwegian core inflation slows down in January; mainland GDP grows 0.6 pct in Q4 2017

Norwegian’s core inflation decelerated in January, coming in at 1.1 percent. This is below consensus and Norges Bank’s expectations of 1.5 percent and 1.4 percent, respectively. Prices on clothes and shoes were the main surprise as they dropped 12 percent sequentially, pulling down year-on-year growth by 0.15 percent. Moreover, airfares dropped more than expected and transport pulled down as much 0.3 percentage points.

Clothes and shoes prices are expected to recovery strongly after the seasonal sale. Therefore, Norges Bank might see through this low figure, noted Nordea Bank in a research report. Airfares are also quite volatile figures.

Meanwhile, the Norwegian mainland GDP expanded 0.6 percent sequentially in the fourth quarter following a rise of 0.7 percent in the prior quarter. This is in line with consensus and central bank’s projection of 0.6 percent rise. The economy on an average grew 1.8 percent year-on-year, as compared with central bank’s forecast of 1.9 percent.

This is a strong and widespread growth figure and affirms the view that growth has entered a self-sustaining path. Most of the production sectors, except public sector, recorded strong growth. Both domestic demand and mainland export expanded strongly. Private consumption rose 0.8 percent sequentially, but housing investment is now falling.

“We see no reason why growth should slow looking ahead. Oil investment will increase, weak NOK and strong growth abroad will help mainland export and consumption will be helped by strong growth in employment”, stated Nordea Bank.

Housing investment is expected to drop; however, business investment looks set for solid growth. Growth in demand for labor would most likely continue to be stronger than supply and the labor market continue to tighten which argues for a 2018 hike, added Nordea Bank.

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