Neysluverðlags

Neysluverðlags, often referred to as the consumer price index (CPI) in Icelandic contexts, is a statistical measure that tracks changes over time in the prices paid by households for a representative basket of goods and services. It is the primary indicator of inflation in Iceland and is used to adjust wages, pensions, and many contracts. The index is published monthly by Statistics Iceland (Hagstofa Íslands).

Construction: The CPI is built from a fixed basket of goods and services that reflects average household expenditures. Weights are derived from household expenditure surveys, and prices are collected from a wide range of retail outlets and service providers across the country. The changes in prices are combined using a price index formula, typically of the Laspeyres type. The base year is defined by the statistical authority, and the index value is set to 100 in that year. The inflation rate is usually expressed as the year-on-year or month-to-month percentage change in the CPI.

Uses and interpretation: The CPI is used to measure price stability, guide monetary policy, and adjust wages, pensions, social benefits, and contracts. It is also decomposed into expenditure groups such as housing, energy, food and beverages, transportation, and miscellaneous goods and services. In some analyses, core CPI excludes volatile items like food and energy to better reflect underlying inflation.

Limitations and caveats: The CPI has limitations, including substitution bias if consumers switch items between price collection periods, the introduction of new products, quality changes, and geographic coverage limitations. It is an index of domestic consumer prices and may not capture transactions abroad or price changes in imported goods that are not priced domestically. Revisions may occur as more complete data become available.