Icelandic Economic Weekly: 13 June 2022

The inflation rate, measuring 8.8% in June, has doubled in a year to reach its highest level since October 2009, when it was 9.7%.

The MPC raised the policy rate by 1 percentage point last week. The CBI’s key interest rate (seven-day term deposits) is now 4.75%, the highest in 5 years.

Total turnover of domestic payment cards increased by 16,5% YoY in May, at constant prices.

Gross domestic product (GDP) increased by 8.6% in the first quarter of 2022 compared with the same period last year.

Since January 2020, rental prices have risen by only 6.5% while the purchase price of apartments has risen by 38.1% over the same period, according to data from Registers Iceland.

Landsbankinn Economic Research published its macroeconomic and inflation forecast for 2022-2024, titled “Growth in the Shadow of Inflation”.

A great many things have changed since Landsbankinn Economic Research published its last macroeconomic and inflation forecast in October last year. The Covid-19 pandemic, with all its restrictions on consumption and daily life, has subsided and people are again free to travel. Icelandic consumption patterns in the past few months have shown clear signs of increased overseas travel and the stream of travellers to Iceland is also increasing. In general, the outlook can be described as bright. We forecast 5.1% economic growth this year, upping our forecast somewhat from last year, and expect growth to be driven by an increase in tourist numbers, a total of 1.5 million this year. Travellers to Iceland numbered 690,000 in 2021.

Registered unemployment was 4.5% in April, compared to 4.9% in March.

The MPC raised the policy rate by 1 percentage point last week. The CBI’s key interest rate (seven-day term deposits) is now 3.75%.

The CPI rose by 1.25% month-on-month in April, bringing the inflation rate to 7.2% compared to 6.7% in March.