According to new figures from Statistics Iceland (SI), the consumer price index (CPI) rose 0.7% month-on-month in October, nudging headline inflation up to 9.4% from the September measurement of 9.3%. Twelve-month inflation fell in August and September but inched upwards this month. Twelve-month inflation according to the CPI excluding housing measured 7.2%, however.
The September measurement was above all official forecasts, including our own updated forecast, which assumed that the CPI would rise by 0.3%. The main difference between our forecast and SI’s measurements lies in the price of food, which rose far more than we had expected, as did imputed rent.
Mutton the main driver of the jump in the CPI
The surprise increase in the CPI was due to a spike in food and beverage prices. The component as a whole increased by 1.6% (0.23% CPI effect), in which a 16% surge in the price of mutton (0.09% CPI effect) weighed heaviest. On the basis of news coverage warning of a spike in product prices, we at ÍSB Research had forecast that mutton prices would rise in coming months, but it took us aback that the hike should take place in a single month.
A number of other items also rose in price in October, including furniture and housewares, up 1.4% (0.09% CPI effect), and clothing and footwear, up 1.2% (0.04%). Both of these items have a tendency to rise after the end of summer sales, sometimes as late as October. Furthermore, petrol prices rose 1.3% (0.05%) and recreation and culture prices by 0.6% (0.05%).