Last month, we published an economic forecast in which we anticipate moderate growth in historic terms. Unemployment has increased and the labour market shows signs of cooling. There are several indicators of slowly declining underlying inflation pressure and, if our forecast holds, interest rate cuts will commence in the new year.
Inflation was unchanged at 5.9% in October, in line with our forecast. Inflation has measured above 5% throughout this year. The measurement was mostly in line with expectations, with higher prices for package tours abroad being the main surprise. Fuel prices rose slightly more than we had forecast and explain the largest part of the index between months. New primary healthcare fees also had a greater impact than we had anticipated. October was the second consecutive month in which imputed rent increased considerably less than in the same month last year, contributing to lower inflation.
The Central Bank of Iceland’s Monetary Policy Committee unanimously decided to keep interest rates unchanged at its most recent rate decision meeting in early October. Inflation had risen since the MPC’s previous meeting, mainly due to the conflict in the Middle East and public levies and fees. The next decision will be announced on 18 November, and we expect the MPC to leave interest rates unchanged again.
In September, housing prices increased considerably more than in recent months, rising by just over 1% between months. Real housing prices, measured against the CPI excluding housing, have declined for eleven consecutive months. So far this year, fewer purchase agreements for residential housing have been concluded than in the corresponding months last year and the housing market continues to show some signs of cooling.
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