Deflation in March, Consumer Price Index decreases

According to figures from Statistics Iceland, the Consumer Price Index (CPI) dropped by 0.56% MoM in March. The 12M inflation rate which was 17.6% in February is now 15.2% and the 12-month rate of the increase in the past three months is only 1.9%. All signs therefore point to a rapid drop in inflation as predicted, which can be expected to encourage a policy rate cut by the Central Bank’s Monetary Policy Committee on its next rate decision date on 8 April.

The lion’s share of the CPI decrease can be attributed to a sharp drop in the cost of owner-occupied housing of 5.1%, lowering the CPI by -0.76%. Almost all of this decrease (0.72%) is due to the lower market value of housing. Price levels excluding housing rose by 0.16%
The price of petrol, oil, food and airline fares decreased while the cost of clothing and footwear rose following the conclusion of winter sales. Lower prices for domestic products MoM could make a rate decrease more likely. The Monetary Policy Committee will announce its rate decision on 8 April, with a cut of 1-2 percentage points well conceivable following this news.