Norwegian headline inflation was unchanged in December from the previous month. The headline consumer price inflation came in at 3.5 percent year-on-year, the same as in November. This is below the Norges Bank’s projection of 3.9 percent and consensus expectation of 3.8 percent. On a sequential basis consumer price index came in at -0.5 percent, as compared with 0.2 percent in the prior month.
Meanwhile, core inflation decelerated to 2.5 percent year-on-year in December from 2.6 percent in November, 0.4 percent below the central bank’s projection of 2.9 percent. Consensus expectations were for 2.8 percent.
The lower inflation was driven by food prices, which dropped as much as last year (2.9 percent) leaving the year-on-year rate unchanged. Moreover, the airfares dropped and subtracted 0.1 percentage point. There were certain changes up and down on other groups as well, noted Nordea Bank in a research report. The downtrend in the inflation indicates towards lower key policy rate from Norges Bank, noted DNB Markets in a research report.
“We will, however, get two more inflation figures before Norges Bank’s monetary policy meeting in March, and we believe inflation must disappoint a great deal more for Norges Bank to consider lowering rates”, added DNB Markets.
It seems that the drop in food prices is partially because of Christmas sale. Therefore food prices might increase again in January. The Norges Bank has also provided clear signs in December that it is not keen on lowering rates further because of increased debt and rising house prices that increases the risk of financial imbalances.
It appears that the decline in food prices is partly caused by Christmas sale. Thus, food prices may rise again in January. The central bank also gave clear signals in December that it is not keen on cutting rates further because of high debt and accelerating house prices that increase the risk of financial imbalances. We therefore stick to our view that Norges Bank is done cutting interest rates.
The material has been provided by InstaForex Company – www.instaforex.com