Inflation exceeded our expectations slightly in December as annual inflation remained unchanged from November, measured at 4.8%. International airfares rose more than we had forecast, and the price of furniture and household appliances rose instead of decreasing. On the other hand, housing costs excluding imputed rent rose somewhat less than anticipated. We predict that inflation will decline gradually through March and then remain relatively stable throughout the year. Our short-term forecast is for 4.7% inflation in January, 4.1% in February, and 3.9% in March.
We believe that the Central Bank's Monetary Policy Committee (MPC) will proceed cautiously with the next interest rate cuts and maintain high real interest rates. The MPC is highly focused on curbing inflation expectations and likely prefers to maintain high real interest rates over risking setting them too low. If our inflation forecast proves accurate, we expect the MPC to continue its rate-cutting cycle in February and March.
The economy still shows signs of momentum. Household card turnover increased between years in November and has grown throughout most of 2024, despite high interest rates. Households appear to have retained some capacity for consumption, with deposits on the rise and no notable increase in overdraft loans. Savings accumulated during the pandemic may still be playing a role, along with the impact of substantial wage increases in recent years. Non-domestic credit card turnover in Iceland also increased year-on-year in November, as tourist numbers hit a record for the month, according to data from the Icelandic Tourist Board. There are some indications that the Tourist Board may have overcounted foreign tourists at Keflavík International Airport while undercounting Icelanders. Monthly figures from Icelandic airlines show an increase in Icelandic passengers in November, which conflicts with the Tourist Board’s data.
Tension in the labour market nevertheless appears to be easing gradually. The Central Bank released its Hagvísar dataset just before Christmas and the figures indicate that a growing number of companies report sufficient availability of labour. Unemployment remains slightly above 2023 levels and measured 3.7% in November.
Open the full text:
Disclaimer
This review and/or summary is marketing material intended for information purposes and not for business purposes. This marketing material does not contain investment advice or independent investment analysis. The legal provisions that apply to financial advice and financial analysis do not apply to this content, including the ban on transactions prior to publication.Information about the prices of domestic shares, bonds and/or indices is source from Nasdaq Iceland - the Stock Exchange. Landsbankinn’s website contains further information under each individual equity, bond class or index. Information about the prices of non-domestic financial instruments, indices and/or funds are sourced from parties Landsbankinn considers reliable. Past returns are not an indication of future returns.
Information about the past returns of Landsbréf funds is based on information from Landsbréf. Detailed information about the historic performance of individual funds is available on Landsbankinn’s website, including on returns for the past 5 years. Information about the past performance of funds show nominal returns, unless otherwise stated. If results are based on foreign currencies, returns may increase or decrease as a result of currency fluctuations. Past returns are not necessarily an indication of future returns.
Securities transactions involve risk and readers are encouraged to familiarise themselves with the Risk Description for Trading in Financial Instruments and Landsbankinn’s Conflict of Interest Policy, available on Landsbankinn’s website.
Landsbankinn is licensed to operate as a commercial bank in accordance with Act No. 161/2002, on Financial Undertakings, and is subject to supervision by the Financial Supervisory Authority of the Central Bank of Iceland (https://www.cb.is/financial-supervision/)
