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Costly Miscalculations at Iceland Statistics

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Costly Miscalculations at Iceland Statistics

Icelandic money

Photo: Geir Ólafsson.

The consumer price index in Iceland was miscalculated during the past six months, because of mistakes made at Iceland Statistics. The 12-month inflation rate, calculated by Iceland Statistics, was underestimated for the past six months. Because of those mistakes, the annual inflation rate for September was twice as high as for the previous month. In September, the consumer price index increased by almost 0.5 percent, well beyond all official forecasts.

The effects of the calculation mistakes is widespread, according to the Analytical Department of Íslandsbanki, since they have resulted in all index-linked loans being calculated based on a wrong consumer price index in the past six months. At the same time, economic and financial managers have been basing their work on wrong data regarding inflation trends. Among them is the Central Bank of Iceland, which based its decision in August to cut interest rates on inflation figures, inflationary trends and real interest rates, all of which were incorrect due to the mistakes at Iceland Statistics.

Corrected figures from Iceland Statistics show that inflation in Spetember was 1.8 percent, after a 0.48 percent increase in the consumer price index from the previous month.

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