Icelandic Producer Prices Rebound In August

Sep 27, 2007 - Iceland's producer prices index or, PPI rose 4.8% to 121.0 points in August, the Statistics Iceland said Thursday. In the previous month the index fell 2.3%. The official data showed that this is the biggest monthly increase in 2007.

In August, the PPI for fish products increased 5.7% compared to July, while producer prices for power intensive industry products were up 9.1%. The PPI rose 3.5% for other manufactured products. Meanwhile, the PPI for food products declined 0.1%.

In August, producer prices for domestically sold products climbed 0.7%. The index rose 7.3% for exported products.

Compared to the same month of last year, the PPI edged up 0.2% versus a decrease of 6.5% in the prior month.

Icelandic Economy Expands In The Second Quarter

Sep 14, 2007 - Iceland's gross domestic product or GDP increased seasonally adjusted 2.2% year-over-year in the second quarter after a 0.9% downturn in the first quarter, the statistical office reported Friday.

In real terms, the GDP grew 2.5% from previous year. Total domestic expenditure remained almost unchanged in the first quarter of 2007, compared to the same quarter of 2006.

The statistical office noted that exports decreased by over 3% year-over-year in the first quarter and imports by almost 7%.

Iceland's Consumer Price Inflation Increases In September

Sep 12, 2007 - Consumer prices in Iceland grew 4.2% on an annual basis in September, the statistics office said, Wednesday. This was more than the 3.4% rise in consumer prices in the previous month. Stripped of housing costs, the Consumer Price Index, CPI, gained 1.1%. The constant tax-rate index climbed 6%.

In the quarter to September, consumer prices expanded 6.5%, accelerating from the 3.1% growth in the three months to August.

On a monthly basis, the CPI rose 1.3% in September after remaining unchanged in the last month. Excluding housing costs, the CPI rose 1.14%. Prices of clothing and footwear jumped 13.6% as summer sales ended, while costs of owner occupied houses increased 2.5%.

The price increase in September was the highest since June, when the CPI rose 4.7% on an annual basis. The core inflation, that is the CPI less prices of agricultural products, vegetables, fruits and petrol, climbed 5.2%.

Iceland Keeps Key Interest Rate at Record 13.3%

Sep 6, 2007 - Iceland's central bank kept its benchmark interest rate unchanged at a record high, citing a deterioration in the short-term inflation outlook as labor shortages push up wages.

Sedlabanki left the rate at 13.3 percent after 18 increases in three years, the Reykjavik-based bank said today on its Web site. All eight economists in a Bloomberg survey expected unchanged rates.

The bank reiterated a forecast that rates won't start to fall until the first half of next year after wages grew an annual 8.3 percent in July, helping to keep inflation above the 2.5 percent target. Robust domestic demand, house-price increases and "buoyant" lending growth also prevented a rate cut, the bank said.

"The inflation outlook has worsened since the bank's last monetary bulletin in July, mostly because of tension in the labor market," said Asdis Kristjansdottir, an economist at Kaupthing Bank hf in Reykjavik. "The krona is also a little weaker and the housing market is not cooling down as fast as we'd expected."

The krona lost 0.3 percent against the euro and was trading at 88.33 as of 11:22 a.m. in Reykjavik. The krona shed 3.6 percent against the European single currency last month.

Deterioration

"The short-term inflation outlook has deteriorated somewhat since the last interest rate decision," the bank said in comments published on its Web site after the rate decision. "Long-term prospects are unchanged, however."

House prices grew an annual 10.1 percent in August, accelerating for a third month and suggesting record borrowing costs have yet to feed through to the property market. Unemployment dropped to a seven-year low of 0.9 percent in July, the country's Labor Board said on Aug. 13.

The inflation rate fell to an annual 3.4 percent in August, Statistics Iceland said on Aug. 13. Consumer prices will probably rise an annual 4.2 percent this month, according to Kaupthing Bank hf.

"The economy is not cooling down fast enough for the central bank to reach its target," Ragnhildur Jonsdottir, an economist at Glitnir Bank hf in Reykjavik, said before the announcement. "Wages are going up, the labor market is quite tight and all these factors contribute to more inflation."

Rates Outlook

Policy makers probably won't start cutting the key rate until March next year "at the earliest," Jonsdottir said. The rate will drop to 9.25 percent at the end of 2008, Glitnir estimates. At Kaupthing Bank, economists don't expect the bank to start lowering the rate until May, bringing it to 11.5 percent by the fourth quarter of next year.

"Indicators suggest that domestic demand is still robust," the central bank said. "The labor market remains tight, turnover and housing demand are buoyant and the pace of lending growth has accelerated."

The economy will probably grow 0.2 percent this year, after expanding 2.6 percent in 2006 and 7.2 percent in 2005, the central bank estimates.

Gross domestic product contracted 0.1 percent in the first quarter led by a 28 percent slump in investments as the construction of aluminum smelters draws to a halt and the plants become operational.