Landsbankinn predicts inflation decrease in Iceland as flight fares drop and housing rents rise

Landsbankinn, a major Icelandic bank, predicts a decline in inflation, anticipating that the consumer price index will decrease by 0.13% month-on-month in November, resulting in a drop in inflation from 5.1% to 4.5%. The factors contributing to this decrease include international flight fares and housing rents.

Ragnar Jón Hrólfsson, an analyst, indicates that while flight tickets are expected to drop significantly, calculated housing rent is set to rise. The analysis foresees ongoing inflation moderation in the coming months, projecting an annual inflation rate of 3.5% by February. It also suggests that other components of the index will have minimal impact.

The bank’s economic overview highlights that prices for international flights often fluctuate dramatically compared to other index items, with seasonal price dips typically observed in November. According to the analysis, an overall decrease of 13.3% in flight fares is anticipated for the month, contributing -0.26% to the index. Additionally, prices for gasoline and diesel are expected to decline by 1.2% (a 0.04% impact).

The Statistics Office accounts for the expense of living in one’s own property based on market rent, and many rental agreements are linked to inflation indices, suggesting that rent may decrease by 0.1%. However, other housing-related costs are likely to rise by 0.8%, primarily due to the 3.5% increase in electricity prices observed last month.

The analysis also notes an element of uncertainty regarding special promotional days in November, which could affect the pricing of clothing, footwear, furniture, and household goods.