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Sell-Side Sees Risk of More Broad-Based Inflation Ahead

NORWAY
  • DNB: Inflation data supports NB’s forecast of a rate hike in May. The price increases were largely in line with Norges Bank’s expectations. The government support scheme for supporting households’ electricity bill contributes to lower the electricity price index. Without the government support, the headline inflation would have been 7.4% YOY.
  • Nomura: There is evidence that inflation is becoming more broad-based and persistent. This could marginally push up policy rate projections but, overall, we expect two more 25bp hikes to a terminal rate of 3.50%. It may be a good sign that most inflation is imported, because it implies there is less risk of a domestically generated wage-price spiral. However, it increases the currency woes faced by NB.
  • JPM: As core inflation was in line with Norges Bank’s forecast, rate hikes in May and June—as implied by the latest rate path— are still in the cards. Today’s mix of domestic and imported inflation undershooting and overshooting projections, respectively, could imply less of a need for a terminal rate above 3.5% (as per our forecast). However, the March meeting had an unprecedented focus on the weak NOK and therefore we do not think normal logic applies.
  • TD Securities: Both headline and core inflation remain stubbornly high in Norway, and should give the Norges Bank all it needs to hike 25bps next month.

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