Commodity prices on world markets are at an all-time high and Iceland has not escaped the effects of that development, RÚV reports. Price increases are not expected to slow in Iceland in the coming months, according to Andrés Magnússon, CEO of the Icelandic Federation of Trade and Services (Icelandic: SÞV). Andrés says the Central Bank of Iceland has no tools at its disposal to combat rising prices.
“We have not seen such increases during peacetime, those are the facts. All indexes, all commodity indices confirm it. No one would think that companies, whether large or small, in whatever form, could take this on [alone],” Andrés stated. “When there is such a large increase in the purchase price, it affects pricing, that’s nothing new.” He says the timing is particularly unfortunate in Iceland, as collective agreement negotiations are approaching.
“The government must be concerned about this. We must draw attention to the fact that the government has already come to the aid of farmers, because fertiliser prices are doubling, apparently, and has given farmers a grant of ISK 700 million [$5.4 million, €4.9 million]. It will be interesting to see whether the government intends to come to the aid of the entire public, which will inevitably be affected by this.”
Housing market impacts inflation
Andrés says the Central Bank of Iceland has no tools to tackle so-called “imported inflation,” when the price of imports increases. “This is a situation we have no control over here [in Iceland] and the Central Bank has no tools or equipment in its arsenal to respond. So in that sense it’s entirely new, dealing with what we call imported inflation.”
Social-Democratic Alliance MP Kristrún Frostadóttir stated that rising prices on the housing market played a big part in driving up inflation. “The largest part of the inflation that is above the inflation target is due to rising housing prices in these incredible times,” Krístrún stated, adding that the government could do more to address the issue. “A 17% increase in housing prices in one year is not normal and we are seeing this spread to other areas now. Now there is talk that domestic inflation is starting to pick up, why do you think that is? It’s because housing is the largest single item in individual accounting.”