The twelve-month rise in house prices nationwide now measures just over 13%, where it has more or less hovered since May. As in the recent past, twelve-month house price inflation was highest for detached homes in greater Reykjavík (16%) and lowest in regional Iceland (11%), although the spread between the two narrowed in August, as the chart indicates.
The steep rise in house prices was a factor in the CBI’s policy rate increase last week. CBI officials pointed out that last year’s policy rate cuts had made a strong impact on asset prices and that house price inflation had been the main roadblock to disinflation this summer. The housing market was not showing signs of a bubble, they said, but rather an imbalance between weak supply and burgeoning demand, and the rate hike was to some extent intended to cool down the property market. In view of this, it will be interesting to keep abreast of market developments in coming months.
Other items also rose between months
Apart from the housing component, the furniture and housewares component was the strongest upward-pushing CPI item in August. The component as a whole rose by 1.1% (0.07% CPI effect), owing to sales effects that are now reversing, as furniture and housewares prices had fallen by 1.6% over the fast three months.
The travel and transport component rose by 0.2% (0.03% CPI effect), with motor vehicle prices rising by 0.6% (0.03%) and fuel prices by 1.0% (0.03%). Fuel prices have increased by 5% over the past three months, in the wake of surging prices in global markets. On the other hand, airfares fell by 1.7% (-0.03%). Developments in airfares are quite uncertain at present, as the ground is constantly shifting under the feet of the airline market these days.