Measured infl ation has been much higher in recent months than
was forecast in the last Monetary Bulletin, largely because of much
stronger exchange rate pass-through than is suggested by recent
historical experience. The magnitude, speed, and persistence of exchange
rate changes can affect the strength of the pass-through.
The króna fell sharply in mid-March, and by the end of the fi rst
quarter the exchange rate had depreciated by approximately 25%
year-on-year. As Chart 1 illustrates, the exchange rate index has
been extremely volatile since that time. The exchange rate has remained
very low, however, and fell still farther in mid-June. Import
price infl ation is currently the most important source of consumer
price infl ation, whereas house price infl ation was previously the principal
driver of general infl ation.