Prime minister says government remains strong despite layoffs

Icelandic Prime Minister Kristrún Frostadóttir says her government remains in a strong position despite high interest rates and mass layoffs, she told mbl.is after a Cabinet meeting on Friday.

She said the government’s main task had been to create conditions to ease economic overheating and pave the way for lower interest rates. She hoped progress would become visible in the coming weeks and months.

Responding to figures released by Statistics Iceland showing inflation unchanged, Frostadóttir said underlying inflationary pressures were easing. She said oil price increases accounted for about a third of annual inflation, while food and housing costs were showing signs of moderation. Those trends could quickly feed through to lower inflation if conditions abroad improved, she said.

Food prices rose 0.4% month on month, despite major supermarket chains announcing price freezes. Frostadóttir urged retailers to go further and hold back increases, saying the Icelandic króna had strengthened considerably this autumn. She said there were strong grounds, independently of wage agreements, for grocery retailers and large companies in the sector to restrain prices. She had received positive indications and hoped they would lead to lower prices, or at least lower inflation, in the coming weeks.

Frostadóttir said losing a job was always difficult, particularly when layoffs were handled impersonally. The government has set a 1% efficiency target for staffing in the coming months, she said, and is seeking to meet it through staff turnover. She added that the government does not always announce when people lose their jobs.

According to the Directorate of Labour, unemployment is currently 4%, up from 3.5% at the same time last year. Frostadóttir said the overall picture might not be as bad as news reports suggest, while acknowledging the difficult circumstances for those affected.