NORWAY: Imported Goods Drive Downside CPI-ATE Surprise

The July inflation release may pressure the Norges Bank to dial back its hawkish guidance at next Thursday’s policy meeting, but exchange rate weakness since the June decision could yet keep the tone hawkish.

• CPI-ATE was a tenth below consensus at 3.3% Y/Y in July. The Norges Bank’s June MPR forecast error has therefore increased to 0.4pp (vs 0.2pp prior), with the bank expecting a 3.7% Y/Y outcome. 
• The lower-than-expected print comes despite food and non-alcoholic beverages rising 3.2% M/M (the same as in July 2023) and 4.9% Y/Y (vs 4.9% last month). A number of analysts with below-consensus forecasts had expected food prices to rise by less this July compared to July 2023.
• Imported goods inflation moderated notably to 1.4% Y/Y (vs 2.0% prior), well below the June MPR projection of 2.2%. 
• This component drove the downside surprise, with services ex-rent (3.8% Y/Y) and rents (4.3% Y/Y) broadly steady versus June’s levels, and domestic goods inflation ticking up to 5.2% Y/Y (vs 5.0% prior).
• Headline CPI was 2.8% Y/Y (vs 2.6% prior), in line with consensus and below the Norges Bank’s 3.4% Y/Y projection. Energy base effects drove headline CPI inflation higher, with electricity, gas and other fuels inflation at -13.4% Y/Y (vs -19.3% prior).