Real exchange rate

More detailed data for ithe real exchange rate can be found in the Databank

Data on the real exchange rate are collected in order to monitor developments in the real exchange rate of the Icelandic króna. The Central Bank also utilizes the data in its operations.

The foundation in law for data collection is in Article 32 of the Act of the Central Bank of Iceland, No. 92/2019 (in Icelandic). In accordance with Article 41 of the Act, the Central bank is allowed to exchange information with public entities concerning matters falling under the scope of this Act, if the exchange of information is consistent with the legally mandated role of the Central Bank or the recipient.

The real exchange rate is defined as the relative development of the price level or labor costs per unit of production in the home country on the one hand and in the trading partners on the other hand since a given base year and measured in the same currency and published as an index.

Data for the real exchange rate are based on official exchange rates and consumer price indices/indices of labor costs per unit of output for Iceland and Iceland's main trading partners according to their weight in external trade (narrow trade weight). The base year of the real exchange rate index is 2005 (annual average 2005 = 100).

Real exchange rate indices are based on:

• Relative consumer price: The consumer price in Iceland in proportion to the consumer price abroad, calculated in the same currency.
• Relative labor cost: Labor cost per unit of production in Iceland in proportion to labor cost per unit of production abroad, calculated in the same currency.

The latest figures are always preliminary.

The real exchange rate is recalculated when new data on developments in the price level and unit labor costs in Iceland's main trading partners become available. Calculations of the real exchange rate are updated monthly to take into account changes as soon as they are received.

The official publication of the exchange rate and consumer price indices are the final publication, but the indices of labor costs per unit of output usually change historically in accordance with audits of the national accounts of Iceland and its trading partners. Sometimes it is necessary to estimate data from trading countries where they have not been received in time. Once the Central Bank's macroeconomic forecast is available, it is possible to publish a new quarterly value for the real exchange rate based on relative wage costs. This value is then updated in the next publication of the real exchange rate after the national accounts have been published on Statistics Iceland's website.