Oil prices rise as Iceland inflation reaches 5.6%

Global oil prices have risen sharply as tensions increase in the Middle East, creating additional pressure on the Icelandic economy, mbl.is reports. Inflation in Iceland is already running at 5.6%.

Brent crude briefly rose above 97 dollars a barrel before falling back below 95 dollars. The fluctuations were mainly driven by fears that fighting between the United States and Iran, along with the situation around the Strait of Hormuz, could further disrupt oil shipments.

An expert at Capital Economics told Reuters that Brent could rise above 100 dollars a barrel if the conflict escalates further.

Fuel prices have already risen

The increase in global oil prices follows a sharp rise in fuel prices in Iceland at the turn of the month. Petrol and diesel rose by between 20 and 31 Icelandic krónur per litre after a temporary reduction in fuel value-added tax expired, taking the rate back from 11% to 24%.

The tax reduction had been part of government measures intended to reduce inflation. According to the GSM bensín website, the most common petrol price in Iceland is now 253.7 krónur per litre, while the most common diesel price is about 283 krónur.

Petrol is cheapest at Costco, where a litre costs about 213.5 krónur. The price there was about 191 krónur before the turn of the month. Diesel is also cheapest at Costco, at just over 250 krónur per litre.

Inflation expected to rise further

Inflation measured 5.6% in August, up from 5.3% in July. It has not been this high for two years.

Higher oil prices can directly affect inflation by raising fuel costs. They can also have indirect effects, as higher transport and energy costs feed into the prices of other goods and services.

Íslandsbanki already expects inflation to rise to 5.7% in September. The forecast includes the impact of the temporary fuel tax reduction coming to an end.