Norway consumer inflation falls in September, lower than market expectations

Consumer inflation in Norway fell during the month of September, remaining lower than what markets had initially anticipated. The prices on food and clothing and footwear rose less than normal for September. After these components contributed to pushing annual inflation up in July and August, the annual growth in food prices is back to the levels from the first half of this year, while the annual growth of clothing now is slightly lower than in the first half of 2016.

Core inflation, as measured by the CPI-ATE was 2.9 percent y/y in September, down from 3.3 percent in August. Market participants had expected 3.3 percent y/y. CPI total rose by 3.6 percent from September last year to September this year.

Lower import price growth. 12-month growth in import prices fell from 4.4 percent y/y in August to 3.5 per cent in September. Prices on domestic goods and services rose by about 2.6 percent y/y in September, down from 2.8 percent y/y in August.

The increase in CPI of 0.3 percent m/m was the lowest recorded in the month of September. The weak price growth this month was due to low inflation in many subgroups; there was thus no single prices that explain the weak index. Still, the fall in food prices was clearly below expectations and the large price increase in the summer is now reversed.

Further, the appreciation of the NOK in recent months has had little impact on current figures, but confirms that inflation could fall substantially more ahead. If inflation continues to come in below Norges Bank's expectation, this is in isolation an argument for a lower policy rate, reports said.

Although today's figures were lower than expected, Norges Bank also expects declining inflation ahead.

"We stick to our view that the key policy rate is kept unchanged in December, with house prices continuing upwards, more signs of improvement in the economy in general and inflation which after all still is above the inflation target," DNB Markets commented in its latest research note.

Meanwhile, the Norwegian krone weakened immediately after the figures with EUR/NOK up 4 øre, but has now fallen back somewhat.