Consumer price index
08. Apr 2024
Inflation falls to 2.6%
The Consumer Price Index (CPI) measures inflation as experienced by Faroese households in their daily living expenses. The latest CPI figures are from February 2024.
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While prices continue to rise, the pace is slowing down, with a 2.6% annual inflation rate in February 2024.
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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', due to a large extent to higher interest rates. District heating and electricity prices have also gone up, and the price of tobacco is up 5%. However, household appliances, clothing and cars are now cheaper.
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Grocery prices still rising
‘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 4% in the past year.
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Within the ‘food and non-alcoholic drinks’ category, prices of fish, meat and vegetables have risen the most. Fish and meat prices increased by more than 5%. The price of chocolate and other sweets rose by more than 6%.
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Higher prices were registered in all ‘Food and non-alcoholic drinks’ subcategories. The price growth in milk, cheese, eggs, cooking oil and butter is less than 1%.
Interest rates have a significant impact on the CPI
Housing costs for Faroese households saw an average increase of almost 9% from February 2023 to February 2024. Mortgage and interest rates continue to rise. Interest expenses for households increased by almost 45%, on average, from February 2023 to February 2024.
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Although district heating and eletricity prices have increased, the average price of liquid fuels for household heating remains at the same levels as February 2023.
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Slower price growth than in other countries
The Faroese annual inflation rate in February 2024 was somewhat lower than in the other Nordic and EU nations, with the exception of Denmark, which had a remarkably low rate of 0.8%.
Iceland had the highest annual inflation rate, at 6.8%, followed by Sweden and Norway (4.5%). The annual price growth in the Faroes matches the EU average of 2.6%.
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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.
From slow to fast price growth
After many years with slow and steady price growth in the Faroes, prices started soaring in 2021 in the wake of the Covid-19 pandemic. This price growth gathered further pace in 2022 after Russia’s full-scale invasion of Ukraine. In the past three years, from February 2021 to February 2024, consumer prices have risen by 16%. In other words, it has become 16% more expensive for households to purchase the same goods and services as in February 2021.
For about four years prior to the pandemic, the annual inflation rate ranged between 1% and 2% in the Faroes and throughout most of Europe. There was almost no inflation in 2020, the year when the Covid-19 pandemic hit hardest.
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.