Businesses urged to pass on currency gains faster

Companies should reflect changes in the Icelandic króna in prices just as quickly when the currency strengthens as when it weakens, according to Þorsteinn Víglundsson, chairman of the Federation of Industries, mbl.is reported.

Vilhjálmur Birgisson, chairman of Starfsgreinasambandið, went further, saying a Central Bank study showed that companies pass on currency depreciation to prices much faster than they pass on an appreciation of the króna to consumers.

The comments were made in a Spursmál discussion about inflation, wage increases and the role of companies in setting prices in Iceland.

Birgisson referred to a Central Bank analysis published in April on how currency movements affected prices between 2000 and 2025. He said the study found that when the króna weakened by 1 percent, shops took 10 months to raise prices by 0.9 percent.

When the króna strengthened by 1 percent, however, it took 30 months for consumers to see prices fall by 0.2 percent, he said.

Birgisson said the findings confirmed a long-held consumer perception that a weaker króna is reflected in prices quickly, while the effects of a stronger currency are passed on much more slowly.

He called on companies to show social responsibility, arguing that the difference affected not only consumers but also inflation and the position of the currency.

Víglundsson disputed parts of Birgisson’s explanation of the causes of inflation but agreed that price changes should move downwards as quickly as they move upwards.

He cautioned against drawing firm conclusions from the Central Bank study, saying several factors could affect how quickly currency changes feed through to prices. He pointed to the period after the financial collapse, when the króna weakened sharply while demand in the economy fell.

Víglundsson said it was therefore not certain that all cost increases caused by the fall in the currency could have been passed on to prices at the time, because there was insufficient demand in the economy.

Despite that caveat, both men agreed that when a stronger króna reduces companies’ costs, consumers should reasonably see the effect in lower prices.