High Inflation Deals a Blow to Iceland
Inflation in Iceland excluding housing increased by 0.5 percentage points month-on-month and now stands at 5.7%.
The Consumer Price Index rose by 0.39% between August and September and has now increased by 5.9% over the past twelve months, according to new figures from Statistics Iceland. Annual inflation rose by 0.3 percentage points from the previous month, when it stood at 5.6%.
The Consumer Price Index excluding housing rose by 0.40% month-on-month and has now increased by 5.7% over the last twelve months. The annual increase in the index excluding housing rose by 0.5 percentage points from March, when it stood at 5.2%.
0.32% Increase Due to VAT on Fuel
A report on the Statistics Iceland website states that the price of diesel rose by 18.1% month-on-month and the price of petrol rose by 16.1%. However, airfares for international flights fell by 11.7%. The agency notes that a temporary reduction in the value-added tax (VAT) on diesel and petrol expired at the beginning of the month, causing the VAT on these fuels to rise from 11% to 24%.
“If the price of these fuels is calculated using 11% VAT instead of 24%, the price of diesel would be 5.7% higher than a month ago (an impact of 0.05% on the index) and the price of petrol would be 3.9% higher (0.07%). The total impact of the VAT change on the consumer price index is therefore estimated to be an increase of approximately 0.32%.”
Bank analysis departments had forecast inflation of 5.8–5.9% for September. Íslandsbanki’s analysis unit had predicted a 0.35% rise in the consumer price index and an inflation rate of 5.9%. Landsbankinn’s economics department forecast a 0.23% rise in the index and inflation reaching 5.8%.
The Central Bank’s next scheduled interest rate decision is on October 7. The Central Bank’s Monetary Policy Committee raised the key interest rate by 25 basis points, to 8.0%, at its last interest rate decision on August 19.
Source: Viðskiptablaðið