Inflation measured 9.7% in August, a drop from 9.9% in July and the first drop in inflation rates since June of last year. The housing market appears to be cooling as well, for which the Central Bank’s interest rate hikes of recent months are likely partially responsible. The Governor of the Central Bank of Iceland says it’s too early to declare victory against inflation, but there are signs that things are heading in the right direction.
Inflation may be lower than projected
“We’re seeing that the real estate component is rising much less than it has in recent months and that indicates that we are seeing a cooling of the real estate market,” Central Bank Governor Ásgeir Jónsson told RÚV. “Then there are other factors that are working in our favour; a drop in the price of oil, raw material prices have been dropping abroad and that is helping us. So hopefully these measures, our interest rates hikes and other things, are having an impact.”
Just last week, the Central Bank projected that inflation would continue to rise. “I hope that this time around we’ve overestimated inflation and that it’s going to be lower than we projected. That would be very positive,” Ásgeir stated.
Economy heating up, tourism boom continues
It is, nevertheless, too early to declare victory against inflation, Ásgeir stated. “This maybe does not impact out long term projections yet. It shows promise, but our work is not done. We of course still have an economy that is growing considerably and is heating up.”
According to newly-released figures from Statistics Iceland, the country’s GDP increased by 4.4% in 2021 and by 6.1% in the second quarter of 2022. Growth in the second quarter is largely attributed to increased private consumption and a large increase in the arrival of tourists to Iceland compared to the same period last year. The growth in tourism appears set to continue: overnight stays in July of this year exceeded all previous years, with 82% of stays attributed to foreign tourists.