Consumer price index
08. Jul 2024
Annual inflation at 3%
The Consumer Price Index (CPI) measures inflation as experienced by Faroese households in their daily living expenses. The latest CPI figures are from May 2024.
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May 2024 inflation climbs to 3.0%, outpacing the previous two quarterly CPI figures – 2.6% in February 2024 and 2.8% in November 2023.
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Highest price hike in housing
The CPI consists of 12 main categories of goods and services. The highest price growth came in 'Housing'. Rising interest rates and higher oil prices are the main drivers of inflation in the past year. Prices in ‘Furnishings and household equipment’ remain unchanged, while ‘Clothing and footwear’ prices have risen less than 1%.
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Grocery prices still rising
Of the 12 main categories in the CPI, ‘Food and non-alcoholic drinks’ make up the largest portion of the average Faroese household spending.
Prices in this category continue to rise, though at a slower pace than in the previous two years, up 3% year-on-year.
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Within the ‘food and non-alcoholic drinks’ category, prices of fish, meat and fruit have risen the most. Meat prices increased by more than 6%, with pork and lamb leading the charge. The price of chocolate and other sweets rose even more, by almost 7%. Prices for potatoes and potato products, cocoa, fruit juice and soft drinks also climbed noticeably over the past year.
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However, not all grocery products have seen price hikes in the past year. Beef, cooking oils and coffee are cheaper than in May 2023, and milk, cheese and egg prices have risen by less than 1%.
Interest rates still impact inflation
Housing costs for Faroese households saw an average increase of just over 9% from May 2023 to May 2024. Mortgage rates continue to rise. Interest expenses for households increased by 28%, on average, from May 2023 to May 2024. The European central bank and Denmark’s national bank recently cut interest rates for the first time since 2019. Faroese banks have also announced plans to cut rates, but this is not reflected in the May 2024 CPI figures.
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A surge in electricity and district heating prices in January 2024 significantly impacted year-on-year inflation in this category. Additionally, the average price of liquid fuels for household heating rose by 14%.
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Average EU inflation is 2.6%
Faroese inflation sits above the EU average (2.6%). Among Nordic nations, Iceland leads with 5.8%, followed by Sweden (3.7%) and then Faroe Islands and Norway (both 3.0%). Finland (1.5%) and Denmark (2.2%) boast the lowest inflation rates.
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Note that the EU inflation rate is based on the HICP index (the Harmonised Indices of Consumer Prices), which means that rental costs are not included.
About the Consumer Price Index and inflation
Inflation is the rate of increase in prices over a given period. The Consumer Price Index (CPI) is the most widely used measure of inflation. It measures the overall change in consumer prices based on a representative basket of household goods and services. If the annual inflation rate is 5%, consumers must pay DKK 105 for the same goods or service that cost DKK 100 the previous year.
When the inflation rate is high, money effectively loses value because you receive fewer goods and services for the same amount spent. In other words, a household’s purchasing power decreases if its income does not keep up with the inflation rate.
The CPI is one of many measures of inflation in an economy. Others include the Producer Price Index, which is a measure of the change in prices that domestic producers receive for their goods and services, and the so-called GDP deflator, which is a measure of the price of all new, domestically produced, final goods and services in an economy in a year relative to their real value.
Changes in consumer prices vary across the categories of goods and services. The CPI weighting system reflects the relative importance of the goods and services as measured by their shares in the total consumption of households.
Faroese CPI figures are compiled quarterly, in February, May, August and November. This is done in accordance with international standards, thus allowing for comparisons with the CPI figures of other nations.