Yesterday Statistics Iceland announced that 12-month inflation in Iceland had fallen below 2% for the first time since March 2004. Prices actually fell 0.9% in January as compared to December. The fall was higher than anticipated by banks which had forecast a price decrease of 0.5 to 0.8%.
It is anticipated that the Central Bank may now lower interest rates from 4.5% to 3.5 or 4.0%. The Monetary Board of the Central Bank has its next meeting on Wednesday, February 2.
The Consumer Price Index, CPI, based on prices in January is 363.4 points (May 1988=”100),” 0.90% lower than in December.
Winter sales caused a 10% decrease in prices of clothing and footwear and a 3.1% decrease in furniture and household appliance prices. Cost of owner-occupied housing declined by 1.8%. International airfares decreased by 15.0%.
The biggest contribution to the price decrease is the treatment of radio charge as a tax rather than a payment for the use of state radio, which lowered the index by 0.4%.
Prices of food and beverages rose by 1.4% and of petrol and diesel oil by 3.1%.
Over the last three months, the CPI has decreased by 0.5%, equivalent to an annual deflation rate of 2.1%.
