Annual inflation in Iceland reached 5.6% in August, its highest level in two years, according to Statistics Iceland.
The figure is more than a monthly price update: it exceeds the inflation condition built into the 2024 private-sector wage agreements, opening the way for unions and employers to begin a formal review of the deals.
What’s the Story?
- The Consumer Price Index rose 0.2% from July and 5.6% from August 2025.
- Inflation excluding housing costs was 5.2% year-on-year.
- The reading exceeds the 4.7% inflation condition tied to review provisions in major 2024 wage agreements.
The inflation test arrives
Statistics Iceland said the cost of owner-occupied housing rose 0.9% between months, adding 0.18 percentage points to the CPI. Clothing prices rose 4.1% as summer sales wound down, while international airfares fell 9.6%, pulling the index in the other direction.
University fees rose 15.1%, largely because the registration fee at public universities increased from ISK 75,000 to ISK 100,000. That fee had not been raised for 12 years.
The result confirms a risk Iceland Review flagged earlier this month. In More Pay, More Problems for Icelandic Borrowers, the August inflation reading was identified as the key test for the review clause in the private-sector wage agreements. Those agreements were signed in 2024 with the explicit aim of supporting lower inflation and interest rates, as Iceland Review reported when the stability agreement was concluded.
RÚV reports that labour and employer organisations can now invoke the review mechanism. That does not automatically terminate the agreements; it begins a process in which the parties assess whether their underlying assumptions have held and whether the contracts should continue unchanged.
The latest figure also follows a long period of elevated prices. Inflation stood at 5.2% in February, when Iceland Review noted that price pressures remained broad across the economy.
Source: Statistics Iceland
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