Reykjavik (IFN) Glitnir Bank is expecting that inflation in Iceland will accelerate to 5.1% in April from 4.5% in March, the bank said in a research note on Tuesday.
The bank said that the main driving force is depreciation of the ISK, which raises costs of imports, mostly oil.
Glitnir expects that the central bank will continue to raise interest rates to curb inflation, but the bank upped the rate by 75 basis points to 11.5% last month.
Despite the expected rate hikes, Glitnir said that the ISK will continue to weaken and will only begin to appreciate again next year.
As a result, Glitnir said that inflation will continue to rise in 2006 but slow down in 2007.
Statistics Iceland will publish latest inflation figures at 0900 GMT on Wednesday (www.statice.is).
Icelandic Financial News (IFN) is available on Factiva, a joint venture between Reuters and Dow Jones Newswires, FT.COM, LexisNexis, Comtex, Gale and Thomson via the Nordic Business Report.