Norway’s Inflation set to remain at about 3%

Norway's core inflation is set to remain at 3.1% somewhat higher than Norges Bank's forecast. Still the difference ( 0.1% point) is too small to have any effect on monetary policy. But a strong upside surprise could have some effect on Norges Bank's view.

Norway December inflation will be published 11 January at 10:00. Economists forecast unchanged core inflation at 3.1%, while Norges Bank forecast a slowdown to 3%. Consensus is not yet known.

Food prices have been strongly in December the last three years and media reports points to the same seasonal pattern also this year. A return to the previous seasonal pattern and core inflation could rise to 3.3% or 3.4%.

Economists have long argued that the current high inflation is of no concern to Norges Bank since it is a temporary effect due the weak NOK. Still that does not mean that a strong upside surprise will have no effect on Norges Bank's view. A high December figure together with the latest NOK strengthening will lift the forecast for 2016 inflation to well above 3%. That means the labour unions must accept a clear cut in real wages in the spring wage settlement to end up close to Norges Bank's forecast for a wage growth at 2.8%.

"We believe there is willingness to accept zero growth in real wages, but a cut is probably harder to accept", says Nordea Research.