Norway's CPI Continue To Slide

Optimism ahead of U.S. earnings reports raised the USD, stock markets and long-term government interest rates on Friday. NOK gained on improved risk appetite, while the latest figures for Norwegian inflation, as expected, confirmed a clear downward trend, DnB NOR Markets writes in today’s Morning Report.

“With low international price pressures and the strengthening of the krone over the past year, we expect that the import price inflation will remain in negative territory for some time to come.”

Kjersti Haugland


“In a thin summer market, where trading volume in the U.S. was at its lowest so far this year, stock markets ended a strong week with further increase Friday. Optimism in relation to the outcomes of the profit reporting season in the U.S. starting this week contributed to improved risk appetite in markets,” DnB NOR analyst Kjersti Haugland writes in today’s Morning Report.


USD strengthened on a broad basis, having been through a bad week characterized by uncertainty surrounding the outlook for the U.S. economy in wake of weak figures.

Increased risk appetite helped the NOK strengthened through Friday, and a rise in long U.S. and German government rates as a result of less demand for safe havens.

Interest rate rise is probably also adapting to an increased supply of government debt this week. Monday, Tuesday and Wednesday will be added into U.S. government bonds nominal value of 64 billion USD.

The positive developments euro seems to have stagnated, and the EUR/USD traded this morning at $1.26, after reaching its highest level in two months – $1.2723 – on Friday.

OECD leading indicator signals that the world economy is still in an expansionary phase.

The level of 103.7 is well above the 100 limit that indicate growth, and the index is rising still. The growth in the index has declined for ten consecutive months, and in May rose by 0.1 index points, compared with 0.3 in April.

Sub-indices for France, Britain and China have already reached the top and is declining, while the American sub-index is a clear increase.

The Chinese trade surplus has picked up again, and monthly figure for June was back to levels before the financial crisis. The increase to 20 billion dollars in June was due to both increased exports and falling imports. The strong export trend (43.9% a / to) indicates that global demand growth will stand.

June figures for Norwegian inflation confirms a clear downward trend, although the outcome was marginally higher than expected.

Total CPI index grew by 1.9% to / to in June, down from 2.5% in May.

A fall of 4.6% in electricity prices from May to June, contributed to the fall. CPI-XE, Norges Bank’s indicator of underlying inflation, slowed from 1.9% to / y in May to 1.6% in June.

Core inflation as measured by the CPI-ATE rose by 1.3% from June last year to June this year, more than we (1.1%) and Norges Bank (1.2%) estimated.

This is largely due to the transportation prices rose more than expected, driven by an increase in flights in the entire 36.2 percent from the previous month.

On the other hand, food prices fell by 1.1% from May, while we had expected a slight upturn. The fall in import prices are rising, from 0.3% to / to in May to 0.6% in June.

With low international price pressures and the strengthening of the krone over the past year, we expect that the import price inflation will remain in negative territory for some time to come.

At the same time slowing the rise in prices for Norwegian goods and services produced as a result of low capacity utilization, productivity growth and moderate wage growth.

Swedish industry recover after being hard hit by the financial crisis. Industrial output grew by 2.3 percent from April to May, clearly more than the consensus of 1.0%.

Swedish auto industry was the main contributor to the strong development. Also, orders for industrial growth, with the 20.4% in the same period, slightly higher than expected.

Although the sector still has considerable overcapacity, the trend is positive and strong. This is well in line with the upward revision of growth and interest rate picture presented in the National Bank’s monetary policy report at the beginning of July, in which it was notified at least two ups in 25 basis points by the end of the year.

This week will probably be characterized by performance reporting and a continued focus on the details of stress tests of the European banks that are published 23 July.

In addition, we get numbers of U.S. retail sales on Wednesday, as well as consumer confidence and inflation on Friday. Wednesday and Thursday we get reports from the last interest rate meeting of the Fed and the Riksbank.

By Kjersti Haugland

DnB NOR Markets

Original report in Norwegian.

Additional figures.

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