Shipping Collusion Cost Icelandic Society ISK 62 Billion

Eimskip Dettifoss

The illegal collusion between Icelandic shipping companies Samskip and Eimskip cost Icelandic society nearly ISK 62 billion [$452 million, €416 million], according to a newly-published analysis. Eimskip has paid an ISK 1.5 billion settlement for the violations, while Samskip has appealed an ISK 4.2 billion fine it has been ordered to pay. The violations have been called “a costly and terrible attack on consumers, which must not be repeated” by Chairman of the Consumers’ Association of Iceland Breki Karlsson.

Costly for Iceland’s economy

“These numbers shed light on how costly competition violations can prove to be for the Icelandic economy,” stated Ólafur Stephensen, CEO of the Icelandic Federation of Trade in a press release. “It is important to have effective competition monitoring, which uncovers such violations, as well as for the consequences of such competition violations to be such that they deter companies from such actions,” Ólafur added.

“By colluding with each other, the shipping companies showed complete disrespected to workers and consumers in Iceland, and now we see what it cost society,” VR Union Chairman Ragnar Þór Ingólfsson stated. The report by Analytica was commissioned by the Icelandic Federation of Trade, the Consumers’ Association of Iceland, and VR Union.

Eight-year investigation

The illegal collusion between the companies occurred between 2008 and 2013, and included violations such as sharing sensitive pricing and business information and limiting transport capacity. The Competition Authority’s investigation into the matter was the most extensive in its history, lasting eight years in total. Of the ISK 62 billion the collusion cost Icelandic society, ISK 26 billion can be directly attributed to increases in the shipping companies’ tariffs beyond general price levels.

Impacted mortgage fees

Besides higher costs for consumers and Icelandic businesses, the collusion also had wider impacts on the Icelandic economy. The consumer price index rose 0.7% above what would have been expected if the companies’ tariffs had remained unchanged in real terms. This, in turn, meant that borrowers of indexed loans paid an extra ISK 17.4 billion [$127 million, €117 million] due to the collusion, a figure the report’s authors call a conservative estimate. The collusion also raised prices for companies in export, transport brokerage, and land transport within Iceland.

An international anomaly

The analysis notes that during the time the collusion took place, fees of shipping companies in neighbouring countries decreased, while those of Samskip and Eimskip were raised significantly. The performance of the two Icelandic shipping companies was also much better than leading foreign shipping companies during the same period.

Inflation Dips Below 10%, Finance Minister Cautiously Optimistic

Bjarni Benediktsson icelandic politics

Despite the consumer price index increasing by 0.59% month-on-month, the annual inflation rate has decreased to 9.8% (down from 10.2% in February). The Finance Minister is hopeful that inflation has peaked. An economist with Landsbanki bank has stated that inflationary pressures remain high.

Inflation dips below 10%

Yesterday, the Central Bank published new figures on inflation on its website. According to the data, the annual inflation rate currently sits at 9.8%, down from 10.2% in February. This decline in inflation – which is commonly measured as the 12-month change in the consumer price index (CPI) – comes despite the CPI rising by 0.59% month-on-month in March. The increase in the CPI is to be explained by a 0.7% increase in food and beverage prices, a 4.3% increase in clothing and footwear, and a 0.8% increase in housing costs.

In an interview with RÚV, Una Jónsdóttir, Chief Economist with the Landsbanki bank, stated that the price reduction of furniture, household appliances, and similar products – which fell by 1.7%. – was the main reason why the annual inflation rate was subsiding.

“If, basically, the price of all volatile items used to calculate inflation are removed from the equation, then inflation actually increased month-on-month. So although it’s certainly positive to see inflation abate a little, it, nonetheless, remains very high. And the underlying pressures are still considerable.”

Una observed that it was hard to say whether this marked the beginning of a decline in inflation: “The new figures certainly support that, but how confident we are in it remains to be seen. The fact that we see underlying inflation increasing is not necessarily a positive sign.”

There are, however, several indications that inflationary pressures are slowly easing. Housing prices, for example, no longer create as much inflationary pressure, given that real-estate prices outside the capital area have fallen. The price of clothes and shoes, however, is now 2% higher than it was before these items went on sale. As noted by RÚV, there are many factors responsible for the current price increases: demand pressure, external price increases, and wage increases. The exchange rate has also not strengthened as expected.

Una concluded by saying that it was unlikely that the Central Bank’s latest rate hike had begun to have an effect: “We saw the inflation pressure decrease on the bond market. When the expectation is, going forward, that inflation will decline, it often serves as a kind of self-fulfilling prophecy.”

Finance Minister cautiously optimistic

Following a cabinet meeting yesterday, Finance Minister Bjarni Benediktsson was asked about the slight decline in the annual inflation rate.

“I think it’s best to hold back with the big statements,” Bjarni told Vísir. “But, on its own, this is a positive development, and hopefully, it’s an indication that inflation has peaked. We have seen large interest rate increases from the Central Bank, and the government finances this year are supporting lower inflation – we see it in a very large change in the performance of the treasury.”

Bjarni noted that the government would continue to take measures that would contribute to lowering the costs of goods and services – which was no small task: “When people have lost control of inflation expectations going into the future, to rebuild the belief that we can tackle this task and be successful – that’s what we’re focused on doing.”

The government’s new fiscal policy for the years 2023-2027 is to be presented today. Bjarni observed that the new policy would differ in its emphasis from the last. The new policy would take into account changes in external conditions.

“There are certain priorities from the government that need to take precedence, and by that, I mean inflation, in particular. So I think that the new fiscal policy will be an important contribution to this situation, and I am happy that, all in all, we can have a lot of faith in the future; it can be bright going forward in Iceland.”

Inflation Rate Now 10%, Up 1.39% From January

inflation rate in iceland

Inflation rates in Iceland continue to rise, with the latest figures from Statistics Iceland indicating that inflation now rests at 10%.

The Consumer Price Index, reported every month by Statistics Iceland, shows that February 2023 reached a level of 577.3 (where May 1988 = 100), a 1.39% increase from January.

Read more: Inflation Rate Continues to Climb (January 2023)

When housing prices are not accounted for, the CPI saw a month-on-month increase of 1.81%, indicating a slow in the housing market, and that private consumption has been the main driver in the increase.

Prices of food and non-alcoholic beverages saw an increase of 1.9)%, while prices of clothing increased by 6.8%. Furniture and other household goods were most affected, at 8.7%.

inflation rate iceland february 2023
Statistics Iceland

The Consumer Price Index is compiled monthly. In addition to serving as an important indicator of consumer spending and inflation, it is also used to determine rates for inflation-indexed mortgages.

The 10% marker is also notable, as this is the first time inflation has exceeded 10% since 2009.

The high rate of inflation has also impacted the ongoing wage negotiations in Iceland, which have been sharpened given the increasing cost of living.

 

Inflation Rate Continues to Climb, Peak Expected in June

architecture Kirkjusandur apartments

The annual inflation rate hit 7.2% yesterday, a 12-year high. Analysts at Íslandsbanki bank predict that the inflation rate will peak in June at 7.7%.

Rising every month since August

Statistics Iceland updated its consumer price index (a proxy for inflation) yesterday. The latest figures indicate that the annual inflation rate has hit a 12-year high, or 7.2%, with the CPI having risen every month since last August.

As noted by RÚV, the consumer price index increased by 1.25% last month: the largest one-month increase since February of 2013.

The biggest driver for this increase is a 2.4% rise in the price of housing and utilities, the single most significant category in the calculation of the CPI (29.3% of total weight), accounting for a rise of 0.45%.

“Housing and utilities are by far the most important driver of inflation in Iceland, first and foremost rent (cost of housing),” Erna Björg Sverrisdóttir, Chief Economist at Arion Bank, stated in an interview with Mbl.is yesterday.

“Of course, the war in Ukraine is beginning to affect inflation,” she continued. “We’ve seen gas prices rise and the price of imported goods, as well. This trend, the gradual increase in inflation among our main trading partners, had begun before the war, but the war has exacerbated these effects,”

(As noted by Kjarninn, the CPI would be approximately 3% lower if housing and utilities had remained unchanged over the past 12 months.)

Another increase that affected the CPI was a rise in the cost of food and non-alcoholic beverages, which increased by 1.4% between months. (Food and non-alcoholic beverages account for 14.7% of the CPI’s total weight).

The rise in the cost of dairy products also contributed to inflation, raising the consumer price index by 0.2%. Airfares likewise increased by 22.9%, causing a 0.37% rise in the index.

Inflation exceeding the Central Bank’s forecast

The current inflation rate exceeds predictions made by the Central Bank: In early February, the Central Bank forecast an annual inflation rate of 5.8% during the first quarter of 2022 and 5.6% during the second quarter. The forecast was, however, published before the Russian invasion of Ukraine, which has resulted in various increases within the international market.

Only 15 days have passed since Landsbanki bank predicted that the inflation rate would peak in June at 7%. Íslandsbanki bank predicts that the inflation rate will peak in June at 7.7%.

Finance Minister Bjarni Benediktsson stated that Iceland’s economic outlook was “improving,” despite rising inflation.

Iceland’s Economic Outlook “Improving,” Despite Rising Inflation

Bjarni Benediktsson icelandic politics

The annual inflation rate hit 6.7% this morning. It hasn’t been higher since May 2010. In a press conference today, introducing the government’s fiscal plan, Finance Minister Bjarni Benediktsson maintained that the economic outlook was “improving.”

Housing, gas, and clothing driving inflation

According to data published on the website of Statistics Iceland this morning, the annual inflation rate in Iceland has hit a near 12-year high: 6.7% – an increase of almost a percentage point (0.94%) since last month.

The biggest driver for this recent increase has been a rise in the price of housing, gas, and clothing. The price of oil and gas rose by 8.2%, the cost of housing by 2%, and the price of clothing and footwear by 5.3%.

As noted by RÚV, the inflation rate has seen a sharp increase over the past few months. The annual inflation rate was 4.3% in August of last year, and it has risen steadily since then. The first three months of this year have seen the steepest increase, or ca. half a percentage point from December.

The inflation rate has exceeded the Central Bank’s target rates (2.5%) for almost two years, RÚV notes.

Fiscal plan introduced today

Finance Minister Bjarni Benediktsson introduced the government’s fiscal plan today.

“We’re exiting a deep economic depression, in which we employed the state finances to safeguard households and companies … we’ve been protecting our public services and ensuring that we’re prepared to recover when the effects of the pandemic began to subside. I think we’ve been very successful in this regard,” Bjarni stated.

A press release on the fiscal plan echoes the Finance Minister’s statement, stating that “the financial standing of households and companies is strong,” and that the government’s debt prospects have “improved considerably:”

“The government is hopeful that a moderate increase in outlays and continued growth within expanding export industries” will provide “an opportunity to strengthen the (economic) base again and work towards building an even more robust society.”

A few key figures from the press release on the new policy:

  1. The unemployment rate peaked in January 2021 (11.6%). Since then, unemployment has declined steadily, currently sitting at 5.2%, which “is similar to pre-pandemic rates.” The government expects the unemployment rate to fall to 4% during the years that the plan is applicable.
  2. With reference to the Harmonised Index of Consumer Prices, the press release states that although inflation is high, it is lower in Iceland when compared to other European countries. The inflation rate in Iceland, according to the HICP, is 4.4%, compared to the average of 6.2% in Europe. The government hopes to lower the inflation rate with “responsible fiscal management.”
  3. Approximately 7,000 people purchased their first home in 2021, a record number since measurements began. According to the government, the “percentage of households in arrears hit an all-time low in 2021, or 0.9% at the end of the final quarter.”

Matters of emphasis

As noted in the above-mentioned press release, the government will be emphasising several issues in its fiscal plan, among them mental health. The policy area will receive a permanent increase of ISK 500 million ($3.9 million / €3.5 million) in 2023, and an additional increase of ISK 100 million ($800,000 / €700,000) each year for the following two years.

Other notable issues that the government will be emphasising in its policy are investments in research and innovation (ISK 25 billion); combatting the long-term social and health-related effects of the pandemic (ISK 3 billion); and defence and cyber security (ISK 2.2 billion).

2.6% of government spending will be allocated to environmental issues. There was no mention of a national stadium in the fiscal plan.

The fiscal plan will be in effect for the years 2023-2027.

 

This article was updated at 12:48 PM.

Fish More Expensive in Iceland than in Landlocked EU Countries

fish fishing haddock

Running a household in Iceland is 66% more expensive in Iceland than it is in the European Union, RÚV reports. This was among the findings presented by economist Gylfi Magnússon during his talk at a conference held by the Consumer Association of Iceland and the Icelandic Confederation of Labour.

Gylfi found that even when compared with some of the most expensive countries in Europe, Iceland did not come out well. “Expenses in Iceland were 17% higher than in Denmark, which was the most expensive country in the European Union in 2017,” he remarked. “And we managed to even overtake the Norwegians in this respect, and Norway is usually the most expensive country in mainland Europe.”

Gylfi asserted that Iceland’s small market size worked against it. Many Icelandic companies, he said, are too small and inefficient. Moreover, shipping expenses aren’t always transparent and are higher in Iceland than they are in other places. He also noted that the prices of items sold in international chain stores, such as Lindex, Bauhaus, and H&M, are an average of 20% higher in Iceland than they are abroad.

Surprisingly, even resources that the country has in excess end up costing more in Iceland. “According to estimates made by Eurostat, the statistical agency of the European Union, on the cost of certain kinds of food products in Europe, the price of fish in Iceland is considerably higher than it is, on average, in other places,” said Gylfi. “It was an average of 8% higher in Iceland than in the European Union in 2017.”

“It’s an undeniably good thing that fish isn’t imported into Iceland, but exported from it,” he continued. Every day, boats and ships stream into the biggest harbours of the country with the choicest fish. The largest markets are usually not far away. There are, for example, three out at Grandi [a seaside district on the west side of Reykjavík], around 500 meters from the harbour. And yet, the price of fish is higher here than in Hungary, for instance, or the Czech Republic, neither of which have shorelines. So in this case, it can hardly be blamed on shipping costs—it something else.”