Inflation set to taper off

We expect the consumer price index (CPI) to rise by 0.4% month-on-month in June, lowering headline inflation to 3.4%, from 3.6% in May.


We expect the consumer price index (CPI) to rise by 0.4% month-on-month in June, lowering headline inflation  to 3.4%, from 3.6% in May.  The outlook is for inflation to subside somewhat in coming quarters, owing to a more favourable outlook for 2019 wage developments coupled with a slowdown in house price inflation. We forecast that inflation will measure 2.9% at the year-end, putting the Central Bank’s (CBI) inflation target well within range, and then taper off to 2.8% at the end of 2020 and 2021.  Statistics Iceland (SI) will publish the June CPI at 9:00 hrs. on 26 June.

Airfares the main upward-pushing item in June

According to our measurements, higher airfares will be the main driver of the rise in the CPI in June. This spike in airfares follows the usual seasonal patterns, as ticket prices generally jump over the summer months. We expect the travel and transport component as a whole to push the CPI upwards by 0.20%. The main inflationary factor in the travel and transport component is air transport, which we expect to rise by 13% (0.25% CPI effect). On the other hand, we expect a 1.0% decline in fuel prices (-0.03%). It is difficult, however, to measure the sub component for airfares following the collapse of WOW Air, which prompted SI to change its methodology at very short notice.  

Inflation forecast 2019

Authors


Jon Bentsson


Chief economist

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Bergthora Baldursdottir


Analyst

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