Asgeir says agreements could speed inflation’s decline

Iceland could see inflation fall relatively quickly if agreements hold and public fees remain in check, Central Bank Governor Ásgeir Jónsson told mbl.is. The central bank announced Wednesday that it would keep its key interest rate unchanged at 8%.

Jónsson said fuel price increases had now worked their way into prices, while the state and municipalities had pledged to restrain fee increases. Many businesses have also announced price freezes or cuts, he said, adding that these steps could help break a “vicious circle” and have lasting effects. The króna’s exchange rate is also helping on the import side.

Jónsson said the central bank had expected the 12-month inflation rate to peak around this time, as forecast last spring. If there are no fee increases above inflation and agreements hold, inflation could ease relatively quickly. As inflation falls and the economy cools, interest rate cuts could follow, though he said it was difficult to predict when.