Inflation in both the Eurozone and the United States is expected to decline further. For Norges Bank, it is important to see lower price inflation abroad, says chief economist Kjersti Hoogland.
Inflation in the two regions is among the most important economic numbers this week, and will arrive on Thursday.
Price growth and interest rate expectations abroad are important factors for Norges Bank, which will hold its next interest rate meeting in mid-December. This could affect the krone exchange rate and price growth here at home.
– If Norges Bank sees inflation falling significantly in other countries, it could raise hope that the same will happen in Norway. This is despite us struggling with the krone exchange rate weakening disinflation, says Kjersti Hoogland, chief economist at DNB Markets.
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She points out, for example, that the Riksbank noted that price inflation had fallen in many countries when they had recently faced rising interest rates.
Euro inflation is on the way down
In the eurozone, price growth has been on a steady decline since its peak last fall.
In October, it fell sharply to 2.9 percent year-on-year. Economists estimate that inflation will fall to 2.7 percent in November, according to Bloomberg. Core inflation, which ignores things like food and energy, is expected to fall to 3.9 percent.
The European Central Bank, as in Norway and the United States of America, aims to keep inflation at around 2% over time.
– Inflation numbers have been alpha and omega for a year and a half, but perhaps they don’t matter anymore. The eurozone market now appears to be more interested in economic activity, Hoagland says.
The chief economist stresses that the surprise inflation figures could still have an impact on the market, but at the same time “it seems quite plausible and acceptable that interest rates have been reached in the eurozone.” Hoagland explains that people are now more interested in when interest rates will be cut, and how the economy will perform in the future.
In addition to inflation figures, there will be, among others, unemployment figures, a measure of the business cycle and updated PMI figures for the euro area.
Preferred by the central bank
In the US, inflation figures this week are also expected to show that pressure is easing.
This time it’s October PCE inflation, the US central bank’s preferred measure of price growth. Hoagland says it’s normal for this picture to look the same as the CPI numbers in the middle of the month. This was slightly lower than expected.
Personal consumption expenditures inflation is expected to ease to 3.1%, compared to the same period last year, according to Bloomberg. Core inflation is expected to fall to 3.5 percent.
– Market reactions seemed very large, given the slight deviation that occurred last time. In this sense, there is a certain possibility of something similar this time, notes the chief economist at DNB Markets.
Hoagland also highlights the ISM Manufacturing Purchasing Managers’ Index (PMI) as an indicator worth monitoring, as it surprisingly fell a lot last time.
– It will be interesting to know if this is temporary, or a sign that the economy is about to weaken.
Shopping and entertainment
Here at home, figures will be released this week on how much shopping we did last month, and how unemployment has evolved.
Both parts could be relevant for Norges Bank in the run-up to the interest rate meeting in about two weeks, according to Hoogland. She says there is no conviction in the market yet about what the Norwegian central bank will do.
The general picture is that inflation and the krone exchange rate point to a rise in interest rates in December. What could stop interest rate increases now are numbers showing the economy is weakening significantly more than expected.
The unemployment rate is expected to rise to 1.9 percent, or a seasonally adjusted rate of 2 percent. In this case, this would be in line with Norges Bank estimates.
When it comes to retail trading, it is estimated that the downward trend will continue. DNB Markets and Handelsbanken expect a decline of 0.2 percent, while Danske Bank expects a decline of 0.3 percent.
– Consumption is weakening. It’s rare for retail numbers to be so decisive, but there is now more uncertainty around the interest rate decision than at a regular meeting, says Hoagland.
The results season is coming to an end
It’s not calm in Oslo Bors either. The results season is entering its last real week for this time.
John Fredriksen Frontline is one of several shipping companies reporting third-quarter results.
Shipping company Solstad Offshore and drilling company Seadrill are other names publishing figures, while engineering consultancy Norconsult reports quarterly results for the first time since the company went public in November.
The airline SAS is also releasing its report on how things are faring in the key months of July, August and September.
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