Consumer price index
09. Oct 2023
Inflation falls to 3.7%
The Consumer Price Index (CPI) measures inflation as experienced by Faroese households in their daily living expenses. The latest CPI figures are from August 2023.
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The August 2023 inflation rate is 3.7%, down from 4.4% in May 2023. August’s rate is roughly at the same level as in November 2021.
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Grocery prices rose the most
The CPI consists of 12 main categories of goods and services. Although the annual inflation rate has come down, higher prices have been registered in most categories, with ‘food and non-alcoholic drinks’ prices rising the most. The most important drivers of inflation in the past year were grocery and electricity prices along with rising interest rates. Prices of transport and fuels for household heating have increased since the previous quarterly CPI report in May. However, these prices remain lower than a year ago.
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Grocery prices up by more than 8%
Out of the 12 main categories, ‘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 rate than in the past two years. From May to August, grocery prices increased by 0.4%. Since February 2022, this category has seen quarterly price increases of between 2% and 4%.
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Within the ‘food and non-alcoholic drinks’ category, prices of vegetables, fruit, bread and cereals have seen the sharpest rise in the past year. Vegetables are now 13% more expensive than a year ago, fruit prices increased by 11% and bread and cereals by just over 10%.
Fish, milk, cheese and eggs have become relatively cheaper for households in the past year compared to the other ‘food and non-alcoholic drinks’ subcategories. The price of fish products has increased by 4% in the past year. Milk, cheese and egg prices went up 3%, which is a below-average price increase for groceries.
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Prices went up across all subcategories within ‘food and non-alcoholic drinks’. For example, coffee, tea and cocoa prices increased by 18% in the past year, and candy prices rose by 7%.
Interest rates affect the CPI
Housing prices saw an average increase of almost 8% from August 2022 to August 2023.
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Mortgage rates have increased significantly in the past year. The price of liquid fuel used for household heating shot up by 14% from May to August. However, this price is still 15% below the August 2022 level. This, along with the first rental cost drop for years, has helped keep the inflation rate in check.
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Slower price growth than in other countries
The Faroese annual inflation rate in August 2023 was somewhat lower than in the other Nordic nations and EU nations, with the exception of Denmark, which had a 2.4% inflation rate.
Norway’s annual inflation rate of 4.8% in August 2023 is now higher than the Faroese rate after enjoying lower inflation than the Faroes in 2021 and 2022.
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With inflation rates of about 8%, Sweden and Iceland still have high inflation. The EU average inflation rate stands at just over 5%. Note that the EU inflation rate is based on the HICP index (the Harmonised Indices of Consumer Prices), which means that rental prices 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.
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.