Iceland’s inflation rate MoM for November 2025 registered a -0.50% decline, a stark contrast to the 0.50% rise in October and the 0.20% consensus forecast. This data, sourced from the Sigmanomics database, highlights a significant cooling in price pressures after a volatile year marked by alternating inflation spikes and mild deflation episodes.

Drivers this month

• Energy prices fell by 1.20%, reflecting lower global oil costs and easing domestic fuel taxes.
• Food inflation slowed to 0.10% MoM, down from 0.60% in October, due to improved supply chain conditions.
• Shelter costs remained stable, contributing minimally to headline inflation.
• Used car prices declined 0.30%, continuing a three-month downward trend.

Policy pulse

The current inflation rate sits below the Central Bank of Iceland’s 2% target on a monthly basis, reinforcing the recent hawkish stance. The bank’s key policy rate, currently at 5.75%, may hold steady or face downward pressure if disinflation persists.

Market lens

Immediate reaction: The ISK strengthened 0.40% against the EUR within the first hour post-release, while 2-year government bond yields declined by 10 basis points, signaling market expectations of slower inflation and potential rate cuts.

The November inflation print must be contextualized within Iceland’s broader macroeconomic framework. The year-to-date average monthly inflation rate stands at 0.30%, with notable volatility driven by energy price swings and supply chain disruptions. The recent deflation contrasts with the 0.90% peak in April 2025 and the mild deflation of -0.30% in January.

Monetary policy & financial conditions

The Central Bank of Iceland has progressively tightened monetary policy since early 2025, raising rates from 4.25% in January to 5.75% in November. This tightening aimed to anchor inflation expectations amid wage growth and imported inflation. Financial conditions have tightened, with credit growth slowing to 2.10% YoY in October from 3.50% earlier in the year.

Fiscal policy & government budget

Fiscal policy remains moderately expansionary, with a 2025 budget deficit forecast of 1.80% of GDP. Government spending on social programs and infrastructure supports domestic demand but is balanced by efforts to contain wage-driven inflation pressures.

External shocks & geopolitical risks

Global energy price volatility, particularly in oil markets, has been a key external factor influencing Iceland’s inflation. Recent easing in oil prices contributed to the November deflation. However, geopolitical tensions in the North Atlantic region pose upside risks to energy costs and supply chains.

The chart below illustrates the monthly inflation rate for Iceland from January to November 2025, showing peaks in April (0.90%) and dips in January (-0.30%) and November (-0.50%). The volatility reflects external shocks and domestic policy responses.

Market lens

Immediate reaction: Following the print, the ISK/USD pair appreciated by 0.30%, while 2-year bond yields dropped 10 basis points, indicating market pricing of slower inflation and potential policy easing.

Looking ahead, Iceland’s inflation path will depend on several factors, including monetary policy calibration, external price shocks, and domestic demand dynamics. We outline three scenarios:

Bullish scenario (30% probability)

• Inflation stabilizes around 0.10% MoM in coming months, supported by continued energy price declines and subdued wage growth.
• Monetary policy remains steady or eases slightly, supporting growth without reigniting inflation.
• ISK strengthens moderately, boosting import affordability.

Base scenario (50% probability)

• Inflation hovers near zero to 0.20% MoM, reflecting balanced supply-demand conditions and moderate external price pressures.
• Central bank maintains current rates, monitoring inflation closely.
• Financial markets remain stable with moderate ISK volatility.

Bearish scenario (20% probability)

• Inflation rebounds above 0.50% MoM due to renewed energy price shocks or wage pressures.
• Central bank responds with further rate hikes, risking growth slowdown.
• ISK weakens amid risk-off sentiment and higher inflation expectations.

Policy pulse

Given the November deflation, the Central Bank of Iceland may adopt a wait-and-see approach, balancing inflation risks against growth concerns. Forward guidance will be critical to managing market expectations.

Iceland’s November 2025 inflation rate MoM of -0.50% signals a notable easing of price pressures after a turbulent year. While this provides relief for consumers and policymakers, it also raises questions about the sustainability of disinflation amid external uncertainties. The Central Bank of Iceland faces a nuanced challenge: sustaining inflation near target without stifling growth. Market reactions suggest cautious optimism, but geopolitical and energy market risks remain key wildcards.

Market lens

Financial markets have priced in slower inflation and a potential pause in rate hikes, as reflected in ISK appreciation and lower short-term yields. Continued monitoring of inflation drivers and external shocks will be essential.

Key Markets Likely to React to Inflation Rate MoM

Inflation data for Iceland typically influences currency, bond, and equity markets sensitive to interest rate expectations and economic growth prospects. The following symbols historically track inflation trends and monetary policy shifts in Iceland:

• USDEUR – Currency pair reflecting broader FX market sentiment and risk appetite.
• OMXICE – Iceland’s primary stock index, sensitive to domestic economic conditions.
• EURISK – Directly tracks ISK movements against the euro, highly responsive to inflation data.
• BTCUSD – Bitcoin’s price often reacts to inflation expectations and monetary policy globally.
• ICEBANK – Icelandic banking sector stocks, sensitive to interest rate changes and credit conditions.

FAQs

What does the November 2025 inflation rate MoM indicate for Iceland’s economy?

The -0.50% MoM inflation rate suggests cooling price pressures, likely reflecting easing energy costs and subdued demand, which may slow economic growth.

How does the inflation rate MoM affect monetary policy in Iceland?

Lower inflation reduces pressure on the Central Bank of Iceland to raise rates, potentially leading to a pause or easing in monetary tightening.

Why is the inflation rate MoM important for investors?

It signals changes in purchasing power, interest rate expectations, and currency strength, all critical for investment decisions in Icelandic assets.

Final takeaway: Iceland’s November inflation rate MoM reversal to -0.50% underscores a pivotal moment in the country’s inflation cycle, demanding careful policy calibration amid external uncertainties and evolving market expectations.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.