Inflation in Iceland accelerated sharply at the end of the year, surprising analysts and reversing the downward trend seen in November, according to newly published figures from Statistics Iceland.
As reported by VÃsir, prices rose faster than forecast in December, pushing annual inflation to 4.5%, up from 3.7% the previous month. Research departments at Landsbanki and Arion Bank had expected inflation to remain below 4%.
The consumer price index (CPI) increased by 1.15% month-on-month, reaching 665.8 points, while the index excluding housing climbed by 1.45% to 531.0 points, indicating broad-based price pressures beyond the housing market.
Unexpected Year-End Surge
Statistics Iceland attributed much of the increase to seasonal price adjustments following the end of discount periods.
Categories that fell in November rebounded strongly in December. Clothing and footwear prices rose by 3.6%, while heating services increased by 9.2%. The single largest contributor was international air travel, where fares surged by 28.8%, accounting for more than half a percentage point of the CPI increase.
Over the past twelve months, prices have risen by 4.5%, compared with 3.8% when housing costs are excluded.
Despite December’s spike, inflation over the full year showed signs of moderation.
The average CPI for 2025 was 4.1% higher than in 2024, continuing a downward trajectory from 5.9% in 2024 and 8.8% in 2023. A similar pattern was seen in the CPI excluding housing, which averaged 3.0 percentage points higher than the previous year, down from steeper increases in recent years.