Less purchasing power in the coming months due to high mortgages
The Central Bank has been raising the key interest again and again this year to battle the all time high inflation. The consumer feels that battle in their mortgage payments going through the roof which leaves less money to spend on other things. mbl.is/Kristinn Magnússon
With inflation at an all time high and the Central Bank raising the key interest rate up to 4.75% to try to cool the market and get the inflation down, Icelanders will have to pay a lot more into their mortgages every month than before. It will likely result in a change in how they spend their money.
Andrés Magnússon, the managing director of the Federation of Trade & Services says that this will change the customers' buying pattern in the fall, when a lot more of the monthly bill will be dedicated to paying the mortgage.
"It must be a concern that the purchasing power is going down, after being at an all time high in the beginning of the year and if this situation continues it will be going down every month," he says, but he thinks that the impact of high mortgages have not yet fully been factored into the forecast of purchasing power in the coming months. The Central Bank has been raising the key interest rate again and again this year to try to battle the inflation.
"If this situation will continues, which sadly might be the case, it will be very difficult to negotiate in the coming collective wage agreements which will start after the summer," he says and points out that the last raise of the key interest rate from June 22nd is not fully reflected in the last mortgage payment.
Less money to spend will change the consumption pattern
"People will still have to buy the bare necessities, but other types of merchandise will suffer as a result of people having less money to spend. When the payments of mortgages go up as much as is expected people are going to really feel it. That means it will impact what they will buy."
He says this is not a unique Icelandic situation, but he was at the EuroCommerce conference last June and there people were voicing similar concerns, like in Denmark and Sweden, but high interests are really having an impact on purchasing powers. On top of that the war in Ukraine and high cost of fuel is a concern all over Europe which is an added factor.