Core inflation measured by CPI-ATE came out at 1.5% y/y in April compared to 0.9% last month. Nordea and Norges Bank was 1.1% while consensus was 1.0%. We had expected a rebound in food prices, but nothing like this. While April last year had the weakest rise in food prices m-o-m we now have the strongest rise. It is especially on vegetables, fruits and fish that year on year growth rose strongly. Food prices pulled up core inflation by 0.4% points while we had expected 0.2% points. Add to this that both clothes and shoes and furnishings rebounded. So now we are 0.4% points above Norges Bank forecast and the big question is whether this will last in May too. We have to look closer into the figures before we draw strong conclusion but our first guess is this; Food prices will most likely drop back. March was too low and April too high possible due to some Easter effect. So core inflation will drop some tenths. But remember Norges Bank?s forecast for May core inflation was 1.0% y/y. So the chances are good we will remain on the upside to Norges Bank?s forecast. That means that Q2 on average will be somewhat on the upside to Norges Bank?s forecast. Possibly enough to counteract the effect on rates by the lower than expected wage settlement. Needless to say the chance of a June cut fell strongly on today?s figure. However a rate hike is not on the agenda, remember Norges Bank rate forecast was biased to the downside. NOK will probably also strengthen on the reduced chances of a cut.
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