Independence Party leader warns of inflation winter

Independence Party leader Guðrún Hafsteinsdóttir warned that Iceland was heading for an “inflation winter” during a speech in parliament, mbl.is reported.

“Last autumn, the prime minister announced an autumn of value creation. It became a spring of interest rate increases. And we are heading for an inflation winter,” she said during debate on the prime minister’s policy address.

Hafsteinsdóttir said the government had promised lower inflation and interest rates but had not delivered. Inflation stood at 5.6%, policy rates at 8%, and gross domestic product had contracted by 1.1% in the second quarter compared with the same period the previous year, she said.

She described stability as one of the biggest welfare issues, saying that improving people’s daily lives had to begin with reducing the burden of interest rates and bringing down inflation.

“It is right to aim for a balanced budget. But a budget bill is a plan. From business, I know that the settlement is what matters most. No one celebrates a good plan,” she said.

Hafsteinsdóttir said the state budget for this year had projected a deficit of 28 billion Icelandic krónur, while the deficit was now expected to reach about 68 billion krónur.

“When the error is 40 billion, there is no reason to celebrate too early,” she said.

The government was now seeking 23 billion krónur through new tax increases, she said, while its promised austerity consisted of postponing spending until later. “It is not saving to put off the bill until next year,” she said.

State fees denominated in krónur were generally set to increase by 5.2%, more than twice the Central Bank’s inflation target, she said. The bank tax and mileage charge would also rise.

Hafsteinsdóttir said the Central Bank had already pointed to the contribution of public-sector fee increases to rising inflation. The government wanted to repair public finances by demanding more from the public, while the Independence Party wanted to do so by demanding more from the state, she said.

She also said the process concerning Iceland’s possible European Union membership had consumed time, energy and money, and that the nation had ultimately rejected starting membership negotiations. She described that as a clear democratic outcome.

The government’s biggest promise, however, had been to reduce inflation and interest rates, she said, arguing that the resources devoted to the European Union process should have been directed towards that goal instead.