The Minister of Culture and Business Affairs is seeking clarification from major grocery chains on why the prices of perishable goods have risen, despite a strengthening króna and a global downturn in inflation, RÚV reports.
Impact of Tourism on Inflation
On Wednesday, the central bank increased its key interest rate by 0.5%, bringing it to 9.25%. Leaders from the Icelandic Confederation of Labour (ASÍ) and the VR union have expressed concerns about the tourism industry’s rapid expansion, arguing that it has led to an overheated economy. However, Minister of Culture and Business Affairs, Lilja Alfreðsdóttir, who also manages tourism matters, countered some of these claims in an interview with RÚV. She pointed out that the expected number of tourists for the current year mirrors 2018 figures, indicating that the growth isn’t as significant as some suggest. Furthermore, increased tourism means a stronger króna.
“Because the tourism sector has been doing well, it has funnelled substantial foreign currency into the country. This inflow of foreign funds has actually helped curb inflation by strengthening the króna,” Lilja Alfreðsdóttir noted.
Unexplained Rise in Price of Perishable Goods
Lilja found it noteworthy that, according to the Monetary Policy Committee of the Central Bank, the price of perishable goods has surged by 12.2% year-over-year. This is perplexing, given that the króna has appreciated by 6.6% and global inflation rates have fallen. She has called upon the key market players to provide an explanation for this unexpected trend.
“Meetings are scheduled with major vendors of perishable goods early next week, and we will also consult additional sources, such as Statistics Iceland, to understand the situation better,” Lilja stated. “The main objective for society is to rein in inflation, thereby paving the way for lower interest rates and providing households with financial relief. Any anomalies contributing to inflation, particularly when the currency is strengthening, require meticulous examination.”