Inflation measured 4.2% in June and increased significantly more than anticipated. Increased price pressure appears to be broad-based but is especially explained by rising prices of imported goods. We have revised our inflation forecast considerably and now project 4.0% inflation in July, 4.2% in August, 4.4% in September and 4.5% in October. In June, we published a forecast for 3.7% inflation in July, 3.9% in August, 4.1% in September, and 4.2% in October.
Economic activity has proven greater than expected, in line with increased inflationary pressure. GDP growth measured 2.6% in the first quarter, payment card turnover has increased year-on-year in real terms each month and real turnover in the economy was significantly higher in the first four months of the year than at the same time last year. There are continued signs of strong consumption patterns in the economy: Icelanders have never taken as many trips abroad as in recent months and, at the same time, household deposits have continued to increase. The króna has also appreciated considerably recently, without reducing imported inflation. Unemployment has increased rather moderately and has been 0.3–0.4 percentage points higher in each month this year than in the previous year.
When increased economic activity is not based on increased productivity, there is a risk of overheating and inflation. The question is whether inflation can be steered towards target without reducing activity in the economy further. The Monetary Policy Committee of the Central Bank of Iceland (CBI) next meets on 20 August and if current developments continue, an interest cut is unlikely.
Housing prices rose gradually in the first four months of the year only to drop by 0.45% in May. The decrease was driven by a price drop of 2.1% in single-family dwellings in the capital region. Prices in rural regions are up, both for single and multi-family dwellings.
The CBI published its quarterly Hagvísar at the end of June and they show continued slackening of tension in the labour market. A growing percentage of business leaders consider labour supply in the domestic market adequate and companies with plans to hire in the near future have grown fewer since March.
Open the full text:
Disclaimer
This review and/or summary is marketing material intended for information purposes and not for business purposes. This marketing material does not contain investment advice or independent investment analysis. The legal provisions that apply to financial advice and financial analysis do not apply to this content, including the ban on transactions prior to publication.Information about the prices of domestic shares, bonds and/or indices is source from Nasdaq Iceland - the Stock Exchange. Landsbankinn’s website contains further information under each individual equity, bond class or index. Information about the prices of non-domestic financial instruments, indices and/or funds are sourced from parties Landsbankinn considers reliable. Past returns are not an indication of future returns.
Information about the past returns of Landsbréf funds is based on information from Landsbréf. Detailed information about the historic performance of individual funds is available on Landsbankinn’s website, including on returns for the past 5 years. Information about the past performance of funds show nominal returns, unless otherwise stated. If results are based on foreign currencies, returns may increase or decrease as a result of currency fluctuations. Past returns are not necessarily an indication of future returns.
Securities transactions involve risk and readers are encouraged to familiarise themselves with the Risk Description for Trading in Financial Instruments and Landsbankinn’s Conflict of Interest Policy, available on Landsbankinn’s website.
Landsbankinn is licensed to operate as a commercial bank in accordance with Act No. 161/2002, on Financial Undertakings, and is subject to supervision by the Financial Supervisory Authority of the Central Bank of Iceland (https://www.cb.is/financial-supervision/)
