Banks forecast Iceland inflation to hit highest level since 2024

Inflation in Iceland is expected to rise to 5.6 percent in August, its highest level since August 2024, according to forecasts from Íslandsbanki and Landsbankinn reported by mbl.is.

Íslandsbanki forecasts a 0.15 percent increase in the consumer price index this month, taking annual inflation from 5.3 percent to 5.6 percent. Landsbankinn expects inflation to reach 5.5 percent.

If Íslandsbanki’s forecast is realised, inflation would be 0.9 percentage points above the 4.7 percent threshold set in the stability agreements. That would allow the collective agreements to be reviewed and, if no agreement is reached on how to respond to the failure of their assumptions, terminated. The agreements have slightly more than a year remaining and expire in January 2028.

Íslandsbanki said the end of seasonal sales would affect the August inflation reading. Both banks also expect higher registration fees at public universities to push prices up.

The fees increased after legislation raised the maximum registration charge at public universities from 75,000 Icelandic krónur to 100,000. Íslandsbanki estimates that the increase will add 0.07 percentage points to the consumer price index.

Íslandsbanki also said increased demand linked to the total solar eclipse over Iceland last week may have slightly increased prices in some parts of the tourism industry, particularly accommodation and restaurants. The effect is not expected to be significant and is likely to partly reverse next month.

Landsbankinn likewise expects the eclipse to have affected prices, including international airfares, accommodation and car rental rates.

Both banks expect inflation to remain high in the coming months. Íslandsbanki forecasts inflation of 5.7 percent in September, 5.4 percent in October and 5.5 percent in November. The bank expects inflation to begin easing again in the first months of next year.

Landsbankinn forecasts inflation of 5.6 percent in September, 5.2 percent in October and 5.3 percent in November.

Landsbankinn also noted that global oil prices rose over the past month and no longer expects fuel prices to fall in August, as its previous forecast had predicted.