(Bloomberg) -- Iceland’s inflation eased to the slowest pace in more than two years, suggesting its central bank is more likely to begin reducing the western Europe’s highest interest rate in the coming months.

The consumer price index rose 6% on year in April, according to a statement from Iceland’s statistics agency published on Wednesday. That’s the lowest level since January 2022 and slightly below the forecast from lenders Islandsbanki hf and Landsbankinn hf which both predicted a 6.1% increase.

The north Atlantic nation’s central bank lifted borrowing costs by 850 basis points in just over two years to 9.25% by last August as the tourism-dependent economy expanded by a fifth in 2021-2023. Still, Iceland’s harmonized price growth is among the fastest in Europe, according to Eurostat.

While Islandsbanki’s Chief Economist Jon Bjarki Bentsson earlier this month repeated his forecast for the first rate cut at the central bank’s meeting on May 8, he saw growing likelihood of a delay in easing to the August meeting, or longer.

Governor Asgeir Jonsson sees “considerable pressures” remaining, according to his speech earlier this month, in which he cited too high inflation expectations and concerns that wage rises agreed in collective bargaining this year could spur prices. 

Among the factors adding inflationary pressure, repeated volcanic eruptions in past months have forced 1% of the nation to relocate, spurring home prices and rental costs. At the same time, it has slowed tourism growth. 

Read more: Iceland Tourism Underwhelms as Prices, Volcano Deter Travelers

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