The CPI compiled in March 2007 is 267.1 points (May 1988=100), 0.34% lower than in the previous month. The CPI less housing cost is 243.2 points, 0.86% lower than in February.

On 1 March the VAT on food and several other goods and services was reduced. Goods and services carrying 14% VAT rate was lowered to 7%. That applies to most food items, books and magazines, TV-licenses etc. VAT on non-alcoholic beverages and catering services was reduced from 24.5% to 7%. Furthermore, excise duties on several food items were abolished and import duties on meat were reduced.

From February to March, prices of food and beverages fell by 7.4% (effect on the index 1.01%) which implies that the VAT reduction of these items has largely been fully realised. The effects of the abolition of excise duties and the reduction in import duties have not been seen yet. Prices of catering services fell by 3.2% (-0.15%) but should have fallen by 8.8% solely as a result of the tax cut.

Winter sales are more or less finished and prices of clothing and footwear rose by 12.3% (0.49%).
Cost of owner occupied housing rose by 1.3% (0.23%), thereof 0.17% was the effect of higher market prices, 0.06% of higher real interest rates.

Statistics Iceland now releases a constant tax rate CPI in which the VAT is kept fixed at the rate in February 2007. This index rose by 1.42% to March. A memorandum on this calculation and the cut in the VAT is enclosed.

The CPI in March 2007 is 5.9% higher than in March 2006 while the CPI less housing cost is 4.1% higher than one year ago. The CPI rose by 0.3% over the last three months equivalent to an annual inflation rate of 1.4% (CPI less housing cost 2.9% deflation).

The credit terms index in April 2007 is 267.1 points. The old credit terms index is 5.274 points in April 2007.