(Bloomberg) -- Norway’s underlying inflation rate declined for the 10th month in a row in August, keeping the door open for an interest-rate cut this year by the country’s central bank.
Core consumer-price growth, which excludes volatile items such as energy, slowed to 3.2% last month, the lowest level in more than two years, according to data from the statistics office on Tuesday. That was in line with the median forecast of economists surveyed by Bloomberg, while Norges Bank had projected a level of 3.6%.
The drop was driven by declines in the cost of child care, and excluding the reduced daycare expense, the underlying inflation rate would have risen to 3.5%, the statistics office said.
Most of the recent evidence on the state of the economy — including a drop in registered unemployment and higher home prices — favor the Norwegian central bank’s aggressively hawkish stance. The inflation outcome, which also includes slower headline price growth, is one of the last key inputs before policymakers meet next week, along with a key survey of Norges Bank’s regional contacts due on Thursday.
“Core inflation running 0.4 percentage points lower than Norges Bank’s view in two of the past three months points to a lower rate path next week, in isolation,” said Dane Cekov, senior macro & FX strategist with Sparebank 1 Markets AS. “Lower headline inflation will likely dampen wage growth expectations for next year somewhat. We expect Norges Bank’s upcoming rate path to be somewhat lower than the one in June but still higher than markets currently expect.”
The krone was little changed following the news. The weakest performer this year in the G-10 space of major currencies is hovering near multi-year lows, underpinning the message from Governor Ida Wolden Bache last month that the benchmark rate will probably stay at 4.5% for “some time ahead.”
Traders in overnight swaps now price in more than a full quarter-point cut by the December meeting and almost 60 basis points of cuts by the end of January, in total. That compares with 12 basis points of cuts for December that was expected at the end of June.
The headline inflation rate also eased to 2.6% after accelerating the previous month, declining more than expected by analysts and the central bank.
In neighboring Denmark, consumer prices rose 1.4% in August from a year earlier, a slight acceleration from the previous month due to electricity price increases, Statistics Denmark said on Tuesday.
--With assistance from Joel Rinneby and Sanne Wass.
(Updates with market reaction, analyst comments from fifth paragraph.)
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