Iceland inflation reaches 5.9% as fuel tax relief expires
Iceland’s annual consumer price inflation rose to 5.9% in September from 5.6% in August. The overall index rose 0.39% from August. Petrol and diesel became dearer after a temporary value-added tax reduction expired on September 1, while cheaper international flights partly offset the rise. The tax change is important context for reading the new rate, rather than attributing the entire increase to demand.
Economics & Markets··Night
Annual inflation reaches 5.9%
Statistics Iceland measured annual consumer price inflation of 5.9% in September, up from 5.6% in August. Trading Economics independently reported the same September figure and described it as the highest reading since August 2024. The overall index increased 0.39% from August to September and stood at 697.3 points on the statistical agency’s May 1988 base. Excluding housing costs, prices were 5.7% higher than a year earlier. The annual and monthly rates cover different periods and should not be treated as interchangeable.[1], [2]
Fuel VAT returns to 24%
A temporary cut in value-added tax on petrol and diesel ended on September 1, restoring the rate from 11% to 24%. During September, petrol prices rose 16.1% and diesel 18.1%. Statistics Iceland estimated that the VAT reversal added about 0.32 percentage point to the overall monthly CPI change. It made that estimate by comparing measured prices with a calculation that kept the old tax rate: under the latter, petrol would have risen 3.9% and diesel 5.7%. The estimate isolates the tax effect; other price movements also entered the index.[1]
Cheaper flights offset part of the fuel rise
The statistical agency calculated a 0.28-percentage-point contribution from petrol and a 0.15-point contribution from diesel to the monthly index. International airfares fell 11.7% and subtracted 0.37 percentage point, partly countering the fuel changes. These contributions refer to the overall monthly index, not to the 5.9% annual rate. The agency collected the September prices around mid-month. It said the new index level will be used for indexation in November. That timetable makes the September measurement relevant beyond the release day without treating the one-month fuel tax effect as a forecast for later months.[1]
