Finance minister expects inflation to fall faster this winter

Icelandic Finance Minister Daði Már Kristófersson expects inflation to decline in the coming months, slowly at first and more quickly as winter progresses. He told Morgunblaðið after a cabinet meeting that he was unusually optimistic and believed the economy might already have reached a turning point, mbl.is reports.

Kristófersson said the latest inflation reading was lower than expected, while the gap between measured and underlying inflation was widening. He said few factors were now keeping inflation high, with continued oil price rises the main driver, both directly and through airfares.

He said economic data had shown positive developments for some time. The effect of house prices on inflation measurements was diminishing, though it would take time for that trend to be fully reflected. He said he might have called the conclusion of collective agreements a turning point.

The minister recently welcomed the fact that Iceland was the only country in Western Europe where inflation had not risen. Asked whether that was like Dubai’s weather service celebrating unchanged temperatures from one month to the next, he agreed, adding that he had also told a Vísir reporter the comparison did not mean much given Iceland’s unacceptably high inflation.

Kristófersson also pointed to positive signs in the bond market. Yields on government bonds had moved in the right direction, he said, indicating that inflation expectations might be coming under better control. He hopes those expectations will fall considerably further.