Norwegian inflation seems to have continued on downside in November, says Nordea Bank

Norwegian inflation is likely to have continued on the downside in November. According to a Nordea Bank research report, inflation is expected to have stayed 0.3 percentage points below the Norges Bank estimate. Inflation falling earlier than projected is unlikely to have any strong effect on the central bank’s view next week.

“We forecast core inflation at 2.9 percent y/y unchanged from September”, added Nordea Bank.

Market projection is also for core inflation to come in at 2.9 percent, whereas the central bank’s forecast from the September monetary policy report was 3.2 percent. Food is pulling down, however, not enough to move forecast down to 2.8 percent, said Nordea Bank. Airfares and food are uncertainties.

The Norges Bank would be presenting its new rate projection next week. There are certain factors pulling in the direction of a lower path such as growth slightly on  the weak side, subdued oil investment survey, stronger NOK and higher spreads in the money market, stated Nordea Bank. Meanwhile, oil prices are considerably higher and housing prices rise even more than projected.

Also, labor market data are consistent with forecast that indicates that Norges Bank would provide less weight to the indications of weaker growth. The mentioned factors to a greater extent cancel each other out. Whether the central bank would revise down its projection is thus to a greater extent dependent on how much weight Norges Bank gives to lower than expected inflation. It might provide little weight.

“Inflation is expected to drop looking ahead and that it falls earlier than expected should not mean that much. In that case the rate path should be close to the one presented in September. A rate cut will still be given less than 50 percent chance”, said Nordea Bank.