Arion Bank forecasts 2027 inflation at 4.2%

• Arion forecast a tougher Icelandic economy, citing Middle East conflict risks, higher commodity prices, rising unemployment, tighter credit conditions.
• Inflation seen at 4.2% next year, driven by war-related energy effects, public fee increases, persistent domestic price pressures.
• Rate cuts pushed back to mid-year; policy rate projected to fall 1 percentage point next year, ending at 7%.
• Private consumption growth expected to weaken through winter into next year as high rates, cost pressures erode household confidence.
• Housing investment forecast to contract this year, fall further next year; real house prices seen declining until mid-2028.

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