Iceland’s preliminary consumer price index rose 0.68 percent in December from November for an annual rate of 5.9 percent, the statistics office said.

Consumer price inflation in the North Atlantic island nation has risen over the past few months and, while still down from the highs recorded last year, it has worried the central bank, which targets 2.5 percent inflation.

In November, the index was up 5.2 percent from a year earlier. Iceland calculates the number after the first two days of each month.

The Icelandic central bank unexpectedly hiked rates to a fresh record last month, saying its outlook of price pressures had grown much worse and leaving an easing of monetary policy unlikely until 2009.

The volcanic island’s economy has boomed in recent years on the back of foreign investments in smelters and geothermal projects, while financial deregulation has also helped spur a rapid expansion of the Icelandic economy.

The central bank tightened monetary policy to try to rein in inflation accompanying the boom, raising its key rate 18 times in the just over two years through to December last year.

Most economists had expected that to spell the end of the central bank’s hiking cycle, but a tight labour market and strong wage growth, as well as rising house prices, have helped stoke inflation again in recent months and analysts do not rule out further monetary tightening.

‘The risk is definitely that they are going to raise rates in the next few months,’ Jyske Bank analyst Charlotte Rahlf said.

Kaupthing economist Asdis Kristjansdottir said the central bank was closely eyeing the constant tax rate inflation rate, which excludes the effects of a tax cut this year. That measure surged 7.7 percent year-on-year in December.

‘This is of course increasing the likelihood that they (the central bank) will raise interest rates again on the 20^th of December,’ she said, adding third-quarter GDP figures due on Thursday could also affect the outcome.

The bank, whose main policy rate is now at 13.75 percent following the November hike, is scheduled to issue its next rate decision on Dec. 20 after an extraordinary policy meeting, added to cut down the time between the regular meetings in November and February.

The Icelandic crown EURISK was broadly steady against the euro after the data. It was at at 89.75 per euro at 0955 GMT, compared with around 89.80 beforehand.