The housing component continues to weigh heavily in inflation

Bergpora Baldursdottir, an economist at Islandsbanki Research, says that the housing component weighs the most in the latest inflation survey. The consumer price index has risen by 4.3% recently. twelve months and the consumer price index excluding housing by 3.3%.

August is therefore the eighth month in a row where inflation measures over 4% and inflation has now been above the Central Bank’s 2.5% target for sixteen consecutive months, from May 2020.

On this side you can see the development of inflation from March 2020, when the coronavirus epidemic began in Iceland. Also included is information on monthly changes in the consumer price index with and without housing. As can be seen, the CPI, including the housing component, has risen more than the CPI excluding it since March.

According to Bergpora, the sub-item calculated rent rents 17% of inflation in August, which is commonly referred to as the housing item.

The increase exceeds forecasts

“The housing component has been the main reason for domestic inflation recently. We predicted that his rise would slow down this month, but the rise was greater than we expected, “says Bergpora. Real estate prices have risen more recently than expected in the Bank’s forecast model.

Bergpora recalls that when the Governor of the Central Bank announced an interest rate increase last week, he said that the purpose was, among other things, to cool the real estate market.

“We could see the effect of that in the coming months,” says Bergpora about the effect of higher interest rates.

Further coverage can be found in Morgunbladid, which was published on 31 August. 

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