Core Inflation Firmer Than Expected On Sticky Services And Food Prices

Norwegian May CPI-ATE was firmer-than-expected at 4.1% Y/Y (vs 3.9% cons, 4.4% prior). This means that the rounded forecast error with the Norges Bank’s March MPR projections remains steady at -0.1pp (Norges Bank forecasted 4.2% Y/Y).

• While still below the Norges Bank’s March MPR forecast, we expect this data to contribute to the Norges Bank maintaining a hawkishly cautious tone at the June 20 meeting, where rates will likely be held at 4.50%.
• The CPI-ATE strength came as services excluding rent accelerated to 4.9% Y/Y (vs 4.5% prior) and food prices remained strong at 5.4% Y/Y (vs 6.8% prior). The latter saw a 0.9% M/M reading.
• On the other hand, overall consumer goods prices were flat on the month, moderating to 3.3% Y/Y (vs 4.1% prior), with both domestic and imported consumer goods seeing disinflation.
• The imported consumer goods component now sits far below the Norges Bank’s March MPR projection (May: 2.8% Y/Y vs 3.5% in MPR). The strengthening of the NOK through May may have helped in this respect.
• Headline CPI was softer than expected at 3.0% Y/Y (vs 3.3% cons and Norges Bank, 3.6% prior), driven by a near 16% M/M and 24% Y/Y fall in electricity and grid rental prices. We hadn’t seen many analyst estimates for electricity prices in May (DNB looked for a ~12% M/M fall), but this appears to be a lower than expected outcome.