Norway: Inflation fell even more than expected

Core inflation measured by CPI-ATE came out at 0.7% y/y in April compared to 1.5% in March. Consensus was 1.0% while Nordea’s forecast was 0.9%. Norges Bank’s forecast was 0.8%.

Headline CPI was 0.3% y/y compared to 0.8% last month. Consensus was 0.5% and Nordea was 0.6%. Norges Bank was 0.2%

As expected air fares fell sharply contributing 0.5% points to the drop in core inflation. This is due to high prices last year connected to the timing of Easter and y-o-y growth will increase next month. The main surprise however was food prices which fell by 1.4% m/m, bringing down core inflation by nearly 0.1 and 0.2% points (the drop in food prices was broadly based). Apart from this there were some minor downside surprises and actually one upside surprise. Prices on culture and recreation rebounded more than expected. It was due not only the rebound in book prices after the yearly sale, but also a rise in prices on package holidays.

Inflation will rise again next month when the base effect from air fares disappears, so the sharp drop in core inflation should not be taken as a sign that inflation is on the way down. Still, the price tendencies besides air fares were weaker than we had expected. It was also somewhat weaker then Norges Bank’s forecast. But only 0.1% point and last month inflation was 0.1% point above its forecast. So Norges Bank will most likely conclude that inflation is broadly in line with its forecast.

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