Services Drive Downside Surprise in CPI-ATE

Norwegian June CPI surprised to the downside, with CPI-ATE at 3.4% Y/Y (vs 3.6% expected by consensus and the Norges Bank, 4.1% prior).

• NOK has weakened following the release, with EURNOK (currently 0.45% higher) just above the 100/200-day EMA’s at ~11.51, but still well short of the first resistance at 11.5679.
• Despite the downward surprise, we maintain our view that meaningful alterations to Norges Bank rate cut expectations will need to wait for after the July inflation data, due August 9.
• A sharp pullback in services inflation appears to have driven the surprise, with services CPI-ATE inflation at 4.0% Y/Y (vs 4.7% prior) and 0.2% M/M (vs 0.8% prior). Rents moderated, as did the "services excluding rent" measure.
• The recreation and culture component notably fell to 4.0% Y/Y (vs 7.6% prior).
• Domestically-produced consumer goods actually accelerated on an annual basis to 5.0% Y/Y (vs 4.7% prior), though another deceleration in imported goods inflation offset.
• The downward surprise in CPI-ATE comes in spite of food prices rising 1.9% M/M - faster than analysts with above-consensus forecasts had expected.
• Headline CPI was 2.6% (vs 3.0% cons, 3.1% Norges Bank and 3.0% prior), driven by a ~20% Y/Y fall in electricity prices for the second consecutive month.