The consumer price index dropped by 0.6 percent in March, which means that indexed mortgages of households in Iceland will decrease by ISK 8.4 billion (USD 72 million, EUR 53 million) in total at the end of this month, given that the total debt amounts to ISK 1,400 billion (USD 12 billion, EUR 9 billion).
For example, the principal of an indexed mortgage worth ISK 10 million (USD 85,000, EUR 63,000) will decrease by ISK 60,000 (USD 512, EUR 377) at the end of March, Morgunbladid reports.
From the Grafarholt neighborhood in Reykjavík. Photo by Páll Stefánsson.
Statistics Iceland published the status of the consumer price index on Tuesday along with good news of the drop in inflation; 12-month inflation dropped from 17.6 percent in February to 15.2 percent, which is the single highest decrease between months in 23 years, since 1986.
“We are witnessing a significant retroversion of inflation, which will definitely make it easier for us to lower the policy rate more rapidly,” Prime Minister Jóhanna Sigurdardóttir told Fréttabladid.
According to Morgunbladid, the largest influential factor is the decrease in cost because of owned housing by 5.1 percent, primarily caused by lower market prices but also by the lowering of the real interest rate.
Furthermore, the price of fuel, food and air travels has dropped, although, after sales finished, the price of apparel and shoes increased.
Inflation is expected to continue to drop; the economics department of the Confederation of Labor (ASÍ) predicts that the Central Bank can realistically reach its target inflation of 2.5 percent at the beginning of next year.
ASÍ economist Henný Hinz told Fréttabladid that inflation is dropping more quickly than expected, which has extensive positive effects on society.
“It means that expenses for daily household consumption will also decrease,” Hinz explained. “In food and drink we saw high and fast increases when the króna depreciated but now it is natural for those price increases to recede.”
Click here to read about the Central Bank’s latest policy rate decision.