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Financial News: Norway Inflation To Fall Further Paving Way For

Norway Inflation To Fall Further Paving Way For Rate Cut: Capital Economics

06/12/2017 - 09:53:00 (RTTNews)

(RTTNews) - Norway's inflation that resumed its declining trend in May is set to fall further, prompting the central bank to cut its key interest rate later this year, Jack Allen, an economist at Capital Economics, said.

Official data released this month showed that consumer price inflation eased to 2.1 percent in May from 2.2 percent in April, its slowest rate in 20 months.

At the same time, Norges Bank's preferred measure of inflation, CPI-ATE that excludes energy prices and tax change effects averaged 1.6 percent in the first two months of the second quarter, much lower than the central bank's forecast of 1.9 percent for the quarter as a whole.

Looking ahead, we think that inflation will fall further in the coming months, the economist said.

Allen observed that the main driver of the slowdown since last summer has been the exchange rate, which has been pulling imported inflation lower.

"The upshot is that we expect CPI-ATE inflation to reach a low point of about 1.0 percent in Q3," Allen said.

"This would be lower than the Norges Bank's forecast of 1.4 percent," the economist commented.

These projections suggest that the bank is already close to loosening policy and suspect that the falling prices would prompt a rate cut, Allen said.

Following the introduction of tighter mortgage lending restrictions in January, house price inflation has fallen sharply, more than the Norges Bank forecast.

"As a result, we have penciled in a 25 basis point interest rate cut in September," Allen predicted.

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