Increased inflation in the latest forecast

Landsbanki's research department is now forecasting a somewhat slower decline in inflation than it had previously expected. If the forecast holds, inflation will be 4.6% at the end of the year instead of 4.3% in the last forecast and it will be 4% in February instead of 3.5% according to the last forecast.

This is among the things stated in the department's newsletter for December, which was published today.

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"We expect annual inflation to be 4.6% in December, 4.5% in January and 4.0% in February. The forecast is somewhat higher than the last forecast we published in the price survey week when we predicted 4.3% in December, 4.1% in January and 3.5% in February," is reported in the newsletter.

The research department says that this difference between forecasts is explained by two factors. First, it is due to the latest measurement by Statistics Iceland, but inflation in November now stands at 4.8%, while the analysis department had assumed that it would decrease to 4.5%.

Assumes an increase in imputed rent

Then the analysis department now assumes a greater increase in imputed rent than before and that inflation will therefore subside more slowly than previously predicted. However, it is noted that this component of the consumer price index, imputed rent, has recently been revised in its current form and therefore it is still difficult to predict this component.

The analysis department also points out that uncertainty in the labor market has gradually decreased, as nurses and doctors signed a collective agreement in November and teachers postponed a strike. This means that agreements in the public market are based on a similar basis for wage increases as in the private market, according to the analysis department. "In the case of nurses, wage increases are achieved not least through shorter working hours and increased bonus payments, but it is difficult to say the total extent of wage increases before the development of the wage index becomes clear."