UPDATE 1-Norway's core inflation above forecasts in Sept

OSLO, Oct 10 (Reuters) - Norway's core inflation rose fasterthan expected in September but remained below the central bank'sprojection, indicating the bank may delay a planned interestrate hike.

The consumer price index (CPI) excluding volatile energyprices rose 1.1 percent year-on-year, data showed on Wednesday,ahead of analysts' forecast for 1.0 percent.

Headline inflation meanwhile came to an annualised 0.5percent, in line with forecasts, as higher transportation costswere offset by cheaper electricity.

The central bank, which targets inflation at 2.5 percent,has predicted a rate hike in December or the first half of nextyear, but some analysts have said that a recent string of lowinflation readings could delay such a move.

Still, the bank may need to hike rates to remove somestimulus as Norway's economy is expanding very fast.

"Inflation is still below Norges Bank's estimate and lowinflation will in isolation suggests a lower rate path inOctober, but today's numbers are not strengthening that argumentfurther," said Ida Wolden Bache, macro analyst at Handelsbanken.

"We expect the first hike in March 2013 and we will not makeany changes based on these figures," Bache added.

Growth on the mainland accelerated to an annual 3.7 percentin the second quarter even as the European Union contracted, andthe government recently raised its 2012 mainland growth forecastto 3.7 percent and predicted growth of 2.9 percent next year.

Norges Bank has left rates unchanged at 1.5 percent sinceMarch and holds its next rate meeting on Oct. 31, where marketswidely expect it to stay on hold.

The government expects core inflation to pick up to 1.7percent next year, still well below the central bank's target,while Norges Bank expects to miss the target for several yearsto come.

The crownwas unchanged at 7.3800 against theeuro after the data.

(Reporting by Victoria Klesty; Editing by Balazs Koranyi)

((victoria.klesty@thomsonreuters.com)(+47 2293 6979)(ReutersMessaging: victoria.klesty.thomsonreuters.com@reuters.net))

Keywords: NORWAY CPI/

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