(Bloomberg) -- Iceland’s inflation accelerated in March, bucking the expectations of the Nordic country’s biggest banks and potentially delaying the start of interest-rate cuts by the central bank.

The consumer price index rose 6.8% on an annual basis, according to a statement from Iceland’s statistics agency published on Tuesday. Lender Islandsbanki hf had expected inflation to ease to 6.5% while peer Landsbankinn hf had forecast it to stay at 6.6%. 

Iceland’s central bank last week held rates steady at 9.25%, a level it’s kept since August as inflation has proved persistent. It’s the highest level in Western Europe.

Modest wage deals reached earlier this month for the private sector, which makes up about 40% of the island’s workforce, had given cause for optimism that the central bank’s cutting phase could start soon. Still, Governor Asgeir Jonsson last week said that the new deal was yet to prove its worth for price stability.

The central bank’s next rate decision will be May 8.

Read more: Iceland’s Central Bank Chief Signals No Rush to Start Easing

Sedlabanki’s main worry is persistently high inflation expectations. In addition, repeated volcanic outbursts in the country’s southwest corner have displaced about 1% of Iceland’s population. The impact of rehousing them has raised concerns over price stability. 

On a monthly basis, the inflation rate was 0.8%, fueled by the rising cost of housing and international airfares.

©2024 Bloomberg L.P.