• Sharp drop in inflation
• We do not believe in a hike next year any more
Core inflation (CPI-ATE) came out at 1.7% y/y in September compared to 2.5% last month. Nordea and Norges Bank was 2.2% while consensus was 2.3%.
This figure was clearly weaker than expected and points to some degree to the previous figures being temporary on the high side. Food prices pulled down year on year growth by 0.2% points after two months with strong growth. We had believed the rise was due to a more lasting rise in margins, but today’s figures indicate that it at least to some degree was temporary noise. Prices on clothes and shoes pulled down even more than food (0.2- 0.3% points). This was less of a surprise and can be explained by the timing of the seasonal sale. Still the effect was stronger than expected. Add to this that airfares dropped sharply pulling down core by 0.2% points. That is probably noise and will most likely be reversed next month. There was actually one upside surprise. Rents continued to increase.
One should not do too much out of one CPI figure and we believe airfares pulled down core temporary by say 0.1- 0.2% points. Still the figure was overall weaker than expected and we are less certain about our forecast for continued high growth in food prices. We were in doubt about our forecast for a hike next year after weak labour market figures and the sharp drop in housing prices last month. After today’s figure we see it as more likely that Norges Bank will be on hold next year. But remember NOK is currently 4% weaker than Norges Bank Q 4 forecast. It will give higher inflation looking ahead.
Nordea