Inflation risks in Norway

Norway is likely to release CPI and core inflation data today. In essence, today's data might tip the scales for or against a rate cut in September. Back in June, Norges Bank had hinted that it was tending towards another rate step in order to stimulate the economy, which was increasingly suffering from the low oil prices. Now, however, high inflation is threatening to scupper these plans. Inflation jumped to 2.6% in June. 

"While the July data due today will probably confirm that the price spike was caused by one-off effects, there is still a risk that inflation will overshoot the target. If the July data confirm that underlying price pressures are increasing, Norges Bank is more likely to stay on the sidelines in September", states Commerzbank. 

As oil prices have declined again, the crown has depreciated considerably, too. On the one hand, this depreciation will compensate the effects of the lower oil prices to some extent, on the other, it will boost inflation via higher import prices. 

"If Norges Bank sticks to its goal of price stability, it has less and less room for rate cuts. That means that the NOK will trade firm if inflation data come in on the high side. And the exchange rate will ultimately be an important factor for Norges Bank's rate decision. While EUR-NOK is relatively illiquid, the exchange rate will remain volatile as long as there is uncertainty about the rate decision in September", argues Commerzbank.