VR chair says government decisions are worsening inflation pressure

Government decisions have helped push up inflation and household costs, VR chair Halla Gunnarsdóttir told mbl.is, pointing to the end of an oil price cap and higher healthcare fees. Twelve-month inflation is now 5.9%, up from 5.6% last month.

Gunnarsdóttir said the biggest month-to-month effects in the latest inflation figures came from government decisions. Allowing the oil price cap to expire had removed a measure that had protected households from external shocks, she said, leaving the effects of the oil crisis to feed into Iceland’s economy.

Reports from the International Monetary Fund and the Central Bank of Iceland have shown that external shocks such as the oil crisis are slow to unwind because they enter Iceland’s indexation cycle, she said. Many contracts and housing loans are tied to price indexes, allowing the effects to reach people’s costs through multiple channels.

Gunnarsdóttir also cited increases in fees for visits to health centres and other healthcare services, which she said were contributing to inflation. She called the timing of the increases over the summer “very strange”, when efforts were expected to focus on easing inflationary pressure.

Inflation is well above the assumptions underlying collective agreements and continues to rise, she said. There are now nine days to decide whether to terminate the agreements, while progress towards a resolution that works for workers has been slow. Gunnarsdóttir described the situation as difficult and largely “self-inflicted”.