NORWAY: June Inflation Tomorrow, Swedish Print Adds Upside Risks

Norwegian June inflation is due tomorrow at 0700BST/0800CET. This will be the first inflation report since Norges Bank’s surprise 25bp cut on June 19. In an interview with the MNI Policy Team following the decision, Governor Wolden Bache indicated that Norges Bank opted to cut rates because it had gained confidence that the Q1 uptick in inflationary pressures was temporary. In this light, we think the base case should be that further cuts can be delivered in September and possibly December if CPI-ATE tracks in line with Norges Bank’s projections – provided economic activity momentum doesn’t accelerate unexpectedly. We continue to think that the bar to rate moves at interim decisions (August and November) is high, but NOK FX and rate markets will as usual be sensitive to large deviations from consensus.

• In the June MPR, Norges Bank projected CPI-ATE inflation at 3.1% Y/Y in June through September (May: 2.77% Y/Y). For tomorrow’s print, the median analyst pencils in a 3.0% Y/Y reading.
• There could be upside risks to analyst and Norges Bank projections after Monday’s Swedish flash June inflation report (3.3% Y/Y vs 2.9% cons, 2.5% prior). Since 2015, there has been a 0.56 correlation between M/M NSA Norwegian CPI-ATE inflation and Swedish CPIF ex-energy inflation. Since 2023, this correlation has risen to 0.69. The chart below also indicates a close relationship between the two inflation rates since February. Clearly, this is a crude and non-causal observation, but still worth keeping in mind.
• Swedish CPIF ex-energy was 0.74% M/M in June. If realised in Norway, this would imply an annual rate of 3.3% Y/Y – comfortably above expectations.
• Norges Bank projects headline CPI inflation at 3.1% Y/Y (vs 3.00% prior), while analysts see 3.2% Y/Y.
• See below for a selection of analyst comments: