Iceland finally reaches target inflation level

The Central Bank of Iceland’s inflation target has finally been reached for the first time in around seven years. The annual rate of inflation is now equal to the target 2.5 percent.

The Central Bank of Iceland changed its monetary policy around a decade ago; floating the Icelandic krona instead of controlling its exchange. It was at that time that the inflation target was adopted. The two-and-a-half percent figure was adopted in order to keep prices stable, increase prosperity and support stable, prudent household and business financing — according to a press release from the central bank in 2001. That seems like an age ago now, RUV reports.

The inflation target has not been reached since April 2004; a much worse performance that Iceland’s Nordic neighbours — none of whom have been using the world’s smallest free-floating currency (the Icelandic krona).

At its highest in January last year, Icelandic inflation hit the 19 percent mark. This means that the price of the average item in a shop would increase by 19 percent in one year. Since then the level has steadily dropped and has now reached 2.5 percent.

Unfortunately, although the inflation target is still technically in force, the central bank is now concentrating mostly on keeping the exchange rate stable.

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