Central Bank Announces 14th Consecutive Rate Hike

Central Bank

The Monetary Policy Committee of the Central Bank of Iceland announced this morning that it would be raising the policy rate by 0.50%. This is the fourteenth rate hike in a row, with the bank’s main interest rate currently sitting at 9.25%.

Inflation subsided slightly

In its fourteenth consecutive rate hike, the Central Bank announced this morning that it would be raising the key interest rate by 0.50%, bringing the bank’s main interest rate to 9.25%. The previous increase of 1.25% was announced in May.

According to the announcement, inflation has subsided somewhat – down to 7.6% in July – since the last interest rate decision. The short-term inflation outlook has improved. However, inflation expectations are still above the bank’s target of 2.5% and there is a risk that it will prove persistent. “In light of this, it is necessary to further tighten the reins of monetary policy. In particular, it is important to prevent the interaction of rising wages and prices.”

The announcement also notes that the housing component’s contribution to inflation has decreased, international price increases have decreased, and the exchange rate of the króna has increased. However, domestic price increases have proven to be persistent and are still on a broad basis. Underlying inflation has, therefore, decreased more slowly than measured inflation; it was 6.7% in July.

Governor calls on the government to exercise “prudence”

In a press conference following the announcement, Þórarinn G. Pétursson, Chief Economist at the Central Bank, noted that the number of jobs is increasing rapidly; during the second quarter of the year, the unemployment rate was 2.8%, the lowest since the fall of 2017. The number of companies in search of employees is decreasing, Þórarinn noted, although the percentage was still well above the historical average.

Þórarinn also noted that economic growth was lower than the Central Bank expected in May. The same held for private consumption: 5% when the Central Bank had forecast expected almost 7%. The difference is mainly in Icelanders’ spending abroad, which turned out to be less significant than expected.

Governor of the Central Bank Ásgeir Jónsson emphasised that a fifty-point hike in the interest rate was significant. The economy remained strained, with wages witnessing a 10% rise year-on-year and notable surges in domestic product prices. According to Ásgeir, the Central Bank has already made substantial interest rate adjustments, and its impact will be closely monitored. The upcoming Monetary Policy Committee meeting is just around the corner.

Regarding next year’s budget proposal, Ásgeir mentioned that the Central Bank did not have specific requests. However, they hope the government exercises utmost prudence in its operations.

Read More: A Króna for Your Thoughts (Interview with Governor of the Central Bank Ásgeir Jónsson)

New Car Sales Rise Despite High Interest Rates, Inflation

driving in reykjavík

The sale of new cars rose during the month of May when compared to sales during the same month last year, RÚV reports. This increase is even more pronounced among individual buyers. A total of 695 new cars were purchased in May, compared to 511 last year: an increase of over 36%.

Up by nearly 15%

As noted in an article on the website of the Icelandic Federation for Motor Trades and Repairs (i.e. Bílgreinasmbandið, an association of employers in the sale of vehicles, products, and services) in early of May, sales of new vehicles in April increased by 16.1% compared to April of last year; a total of 1,629 new were registered compared to 1,403 last year. “Overall, after the first four months of the year, sales of newly registered vehicles have increased by 11%. This year, 5,129 new passenger cars have been sold compared to 4,621 new passenger cars last year,” the articles notes.

This trend has continued in May. Although high interest rates and inflation have a significant impact on those buying vehicles on credit, this is not yet reflected in the figures for car sales in the month of May, María Jóna Magnúsdóttir, Managing Director of the Icelandic Federation for Motor Trades and Repairs, stated in an interview with RÚV.

As noted by RÚV, sales of new cars rose in May, compared to the same month last year, increasing by over 36%. Electric cars account for the most significant part of the increase. “There is a considerable increase, especially among individual buyers. The main reason for that is that in May of last year, the supply of electric cars was small; electric vehicles form a large share of the vehicles sold to individuals this May. Last year there were about 278 electric vehicles sold to individuals, compared to about 500 in May of this year,” María Jóna observed.

Tesla may skew the statistics

Electric cars are by far the most popular type of vehicle, accounting for nearly 40% of all cars sold, with electric, hybrid, and plug-in hybrid cars being 75% of the total of new cars sold. RÚV notes that Toyotas are the most popular of new cars followed by Teslas. As Tesla often delivers more vehicles at once, compared to other manufacturers, this may serve to skew the statistics. “Tesla has become big in the individual market, and when they’re delivering such a number of vehicles at short intervals, it affects the market, which means that it’s good to review the figures over a longer period for more accurate data.”

Starting to have an impact

Car rentals purchase a significant number of vehicles at this time of year. Sales to individual buyers, however, are noteworthy – especially in light of the current conditions, i.e. high inflation and high interest rates. “If we examine the numbers over the whole year, new car sales to individuals are up by about 3.6%.”

When asked if the figures in May had begun to reflect higher interest rates and borrowing fees, María responded thusly: “No, maybe not at this exact moment, but, of course, it’s beginning to have an impact; when car loans are almost in the double digits, it begins to affect buyers who are financing with loans,” María Jóna observed.

In a recent interview on Bankrate, Sarah Foster, senior US economy reporter, explained the effect of inflation on auto loan rates, noting the goal of higher interest rates in layman’s terms: “Higher borrowing costs don’t just disincentivize spending but squeeze people out of being able to afford big-ticket items, causing the economy to slow … the hope is that eventually, those higher rates will crush demand so much that inflation eventually drops.”

Cost of Milk and Dairy Products Increases

icelandic cows

The Agricultural Pricing Committee has decided to increase the minimum price that milk can be bought from dairy farmers, alongside the wholesale price of milk and dairy products. The price hikes can be traced to cost increases in the production and processing of milk, the governments website notes.

Price hikes traced to cost increases in production and processing of dairy

In an announcement on the government’s website yesterday, the Ministry of Food, Agriculture, and Fisheries announced that the Agricultural Pricing Committee – which sets the price at which milk is bought from dairy farmers – had decided to raise the minimum price of milk alongside the wholesale prices of milk and dairy products.

As noted in the announcement, the following price change came into effect on April 1, 2023: “Minimum price for category 1 (i.e. 1.fl) milk to farmers increases by 4.33%, from ISK 119.77 per litre [$0.88/€0.80] to ISK 124.96 per litre [$0.91/€0.83].

Additionally, the following price change will take effect on April 12, 2023: “The wholesale price of milk and dairy products set by the committee will generally increase by 3.60%.”

The announcement traces the decision to increase prices to cost increases in the production and processing of milk; since the last price determination in December 2022, the expense items within the operational costs of dairy farms have increased by 4.33%. During the same period, the processing and distribution costs of agricultural processing plants have increased by 2.74%, which serves as the basis for the increase in wholesale prices, as well as the increase in product prices.

More Unhoused People Spending Majority of Year in Shelters

homelessness in reykjavík

The number of unhoused individuals dwelling in emergency shelters has increased. These individuals are also dwelling in shelters for longer than before, RÚV reports.

An inquiry from a representative of the People’s Party

As noted in a response from the Reykjavík City Welfare Council to an inquiry from a representative of the People’s Party, the number of unhoused individuals dwelling in emergency shelters for a large part of the year has increased significantly over the past two years. There were 317 people dwelling in the city’s shelters in 2020; last year, that number had risen to 390.

Discussions have begun between the City of Reykjavík and the Ministry of Health to find appropriate resources for this group.

“The city’s policy is that unhoused individuals requiring great, complex services should not stay in emergency shelters for more than three months a year on average. The trend has reversed in recent years, with the number of people staying in emergency shelters for more than 90 days having increased: up from 44 in 2020 to 76 in 2022. There has also been a significant increase in the number of people staying in emergency shelters for the majority of the year. In 2020, there were thirteen who stayed there for more than six months, while in 2022 there were 29.”

The welfare council’s response states that the government is currently looking for ways to respond to this development. It is often the case that those staying in emergency shelters need nursing care. Discussions are underway with the Ministry of Health to find these individuals suitable care.

A certain sign of a “lack of resources”

Last November, RÚV spoke to Svala Jóhannesdóttir, a harm-reduction expert and one of the founders of Matthildur (an organisation for harm reduction), who stated that the fact that people struggling with addiction were increasingly looking to parking garages for shelter showed “a lack of resources for the unhoused.”

The article noted that for seven hours a day, unhoused men had no shelter, with the parking garage on Vesturgata having become a popular site of injection for individuals struggling with addiction. The garage is adjacent to a health clinic, which hired a security guard after an employee was assaulted in the parking garage.

“This is a natural manifestation of a certain lack of resources that exists in services to unhoused individuals in the capital area. Nobody looks in a car basement or a parking garage unless they have nowhere else to seek shelter,” Svala observed.

Central Bank Raises Key Interest Rates by 0.5%

Central Bank Ásgeir Jónsson seðlabankastjóri

The Monetary Policy Committee of Iceland’s Central Bank has announced that it will be raising key interest rates by 0.5%, with short-term interest rates (seven-day term deposits) now sitting at 6.5%, RÚV reports. Although the housing market has cooled, and global inflation slightly eased, inflationary pressures remain high.

Inflation outlook worsened

At a briefing held at the Culture House in Reykjavík this morning (there is construction work ongoing within the Central Bank’s meeting hall), the Monetary Policy Committee (MPC) of the Central Bank announced its decision to raise key interest rates by 0.5%.

As noted in the Statement of the Monetary Policy Committee published this morning, although the housing market has begun to cool and global inflation has eased slightly, “inflationary pressures are still pronounced” and price increases “widespread:”

“The inflation outlook has worsened since the MPC’s last meeting, and although inflation has most likely peaked, bringing it back to target [rates] will take longer than previously anticipated. The deterioration in the outlook stems in particular from the recently finalised private sector wage agreements, which entail considerably larger pay rises than previously assumed. Furthermore, the króna has depreciated, and the outlook is for a larger positive output gap during the forecast horizon,” the statement reads.

More restraint required in the near future

As noted by RÚV, inflation increased in January and was recorded at 9.9%. In light of this, the MPC believes that it is necessary to increase restraints in the near future in order for inflation to subside. According to the Monetary Bulletin, inflation is expected to average 9.5% in the first quarter of this year, which is 1% more than was expected in November.

International inflation remains high even though it has subsided from last year’s peak, and there remains considerable uncertainty about the economic outlook, the Monetary Bulletin notes. The progress of the war in Ukraine will have a lot to do with international economic development, which will inevitably also affect this country.

The Monetary Bulletin also states that, according to the Bank’s new macroeconomic forecast, GDP growth in 2022 measured 7.1%: “far above the November forecast and, if the forecast materialises, the strongest GDP growth rate since 2007. GDP growth is set to weaken in 2023 but the labour market is expected to remain tight, however.”

Alcohol Consumption On the Rise Among Icelanders

The consumption of alcohol among Icelanders has increased significantly and cases of cirrhosis are on the rise, Dr. Valgerður Rúnarsdóttir, the Medical Director of SÁÁ, has stated in an interview. Dr. Valgerður encourages individuals to seek treatment before problems get out of hand.

A new year, a new opportunity

In an interview with Vísir today, Dr. Valgerður Rúnarsdóttir, the Medical Director of SÁÁ (National Centre of Addiction Medicine), stated that many people see the new year as an opportunity to deal with addiction-related issues. About 600 people are currently on a waiting list for treatment at SÁÁ, which is similar to the past few months.

Valgerður noted, however, that most people don’t have to wait that long for admission. Valgerður added that many people were hesitant to seek help because they were unsure that their problems were “big enough.” According to Valgerðar, however, the right time to seek help is when the thought occurs that there might be a problem.

Read More: In Harm’s Way: Harm Reduction in the Age of Opioids

“The most numerous group of people that needs help is precisely that group of people who, because of their addiction, are about to miss out: whether on school, work, or connections with their family. It’s best to intervene while they’re still functional.”

A growing problem

Although patients at SÁÁ’s Vogur detox and rehabilitation centre are seeking help for various kinds of addiction-related issues, alcohol abuse remains, by far, the most common. Dr. Valgerður observed that alcohol consumption was “constantly increasing” and that, generally speaking, Icelanders “tend to drink a lot.”

“It has huge consequences. Hepatologists, for example, have observed that cirrhosis of the liver has greatly increased in Iceland. And we see that many people are in poor health from heavy alcohol consumption.”

Valgerður repeated her point about people not waiting too long to seek help: “I’d like to encourage people, who’ve been considering it for some time, to seize the opportunity now, during the beginning of 2023. Address the issues. We welcome everyone who comes to us.”

VR Leaves Negotiating Table, Finance Minister Denies Blame

Minister of Finance Bjarni Benediktsson

The Prime Minister has expressed disappointment in VR’s decision to break off wage negotiations with SA Thursday evening. The Minister of Finance does not believe his comments on the Central Bank’s interest-rate hike were “the deciding factor,” RÚV reports.

Mixed messaging among ministers

This morning, Ragnar Þór Ingólfsson, Chair of VR (the Store and Office Workers’ Union) confirmed to RÚV that he had walked out of negotiations with SA (the Confederation of Icelandic Enterprise) last night, which had recently been referred to the state mediator.

The reasons, Ragnar stated, were “numerous,” although the incongruous messaging of Prime Minister Katrín Jakobsdóttir and Finance Minister Bjarni Benediktson concerning the Central Bank’s interest-rate hikes “played a role.

Prior to the Central Bank announcing that it would be raising interest rates, VR and SA had been aiming toward an agreement predicated on less inflation and a lower interest rate:

“But then the Central Bank announced a hike, which, in reality, altered the premises from which we had hoped to proceed,” Ragnar Þór told RÚV. “The PM subsequently invited us to a meeting yesterday morning, in which she attempted to reset the parties’ expectations. It was a pretty good meeting.”

Ragnar observed that the parties proceeded to Karphúsið (the facilities of the state negotiator) where they hoped to continue their negotiations at noon.

“We’ve hardly taken our seats when an announcement is made by the Minister of Finance in which he echoes the Governor’s (the Central Bank) message, which is completely at odds with what the PM had told us. After that, the negotiations became quite difficult. And when it became clear the kind of ideas that SA were entertaining regarding a 14-month contract, which we had been discussing, it was obvious that there was no ground to continue negotiating.”

An interest-rate hike of some consequence

Following a cabinet meeting this morning, Katrín Jakobsdóttir discussed Thursday’s wage-negotiation collapse with RÚV. Asked if she had wished that the Central Bank had not raised interest rates, Katrín responded thusly:

“The Central Bank makes its own decisions in accordance with the statutory aims under which it operates. It’s not my place to comment on those decisions, but it is clear that this decision led to the collapse of negotiations.”

“I regret the fact that VR decided that it was appropriate to leave the negotiating table at this time, but I hope that we can find some kind of opening,” Katrín added.

“Best to speak honestly”

This morning, Bjarni Benediktsson was asked to respond to Ragnar Þór’s claim that his comments, justifying the Central Bank’s actions, had been a deciding factor in the collapse of negotiations.

“No, I think it’s always best to be completely honest about things,” Bjarni remarked. “And I just saw an announcement from VR where no mention is made of my comments; it’s likely that the premises had changed following the Central Bank’s decisions, premises which likely were the basis for the parties’ negotiations.”

Bjarni told RÚV that it was clear that inflation would rise and that it was only natural for the Central Bank to employ those tools at its disposal to keep inflation in check:

“But the truth is that the inflation forecasts have worsened, and the ghost of inflation is set to follow us a bit longer, and inflation will be higher next year than we had hoped just a few months ago. The tension in the economy runs high. We’re nearing maximum production capacity and the level of employment is very high. Consumption is high, which is one of the factors to which the Central Bank has pointed. It doesn’t really surprise me that the Central Bank continues to send these clear messages, that it will continue to fight inflation, and it’s desirable that all of us cooperate to do the same.”

VR is Iceland’s largest trade union, representing some 40,000 workers.

 

Heightened Police Presence in Reykjavík This Weekend

police lögreglan

Partygoers in downtown Reykjavík this weekend can expect an increased presence among police authorities. The Capital Area’s Assistant Chief of Police has told RÚV that the police will “be ready” in the event of retaliatory violence following last weekend’s knife attack.

Spate of violence

Following mass arrests in wake of a knife attack at the Bankastræti Club nightclub in Reykjavík last weekend, which left three young men hospitalised, petrol bombs were thrown into houses, windows broken, and the suspects’ families were subjected to harassment. There were also posts on social media, encouraging retaliation for the attacks. The American and British embassies in Iceland subsequently issued travel advisories to tourists, warning them to avoid large crowds downtown this weekend.

Addressing these issues on the radio programme Morgunútvarpið this morning, Ásgeir Þór Ásgeirsson, Assistant Chief of Police for the Capital Area Police, stated that the police would command a much greater presence in downtown Reykjavík this weekend, in the event that further acts of violence were to be perpetrated.

“As far as we’ve gathered, there were, and are, threats of violence this weekend – and the operations of certain Reykjavík restaurants are expected to be disturbed,” Ásgeir stated. “We’re going to protect our city this weekend – as we’ve always done.”

When asked if individuals connected to the gang violence last weekend were expected to perpetrate further violence, Ásgeir replied that he hoped not. “But law enforcement isn’t predicated on hope. We have to be ready when we say that we’ll be ready and we’ll be ready this weekend.”

Ásgeir was unwilling to offer details on the exact meaning of “an increased presence” among police authorities but stated that they would mobilise more equipment and more officers capable of handling “difficult assignments.” This heightened police presence would not be lost on anyone.

“It’s absolutely clear that the people will feel our presence. We hope that the people involved in these altercations have come to their senses and won’t be dragging their disputes to downtown Reykjavík. I think that that’s something all of us, collectively, have been aiming towards,” Ásgeir stated.

Enrollment in Opioid-Substitution Treatment on the Rise

Individuals receiving opioid-substitution treatment have significantly increased over the past years. According to Minister of Health Willum Þór Þórsson, 276 people were enrolled in the treatment in 2019, compared to 438 in 2021.

A formal enquiry before parliament

Following a formal enquiry by MP Diljá Mist Einarsdóttir – on whether doctors would be granted greater authority to prescribe opioids to those struggling with addiction – Minister of Health Willum Þór Þórsson gave no indication before Parliament that greater authority would be granted.

Read more: In Harm’s Way: Opioid Addiction in the Age of Harm Reduction

Willum Þór explained that opioid-substitution treatment is provided primarily by three institutions in Iceland: SÁÁ (the National Centre of Addiction Medicine), the University Hospital of Iceland (Landspítalinn), and the Akureyri Hospital in North Iceland. The main drug employed during treatment in Iceland is Buprenorphine, both in tablet and injectable form, which is a licensed drug (“costly and/or must be treated with care”) administered at no cost to patients and supervised by the University Hospital’s Medicines Advisory Board.

The use of Buprenorphine in injectable form, Willum noted, is restricted to healthcare institutions (H-label) while Buprenorphine in tablet form must be prescribed by doctors with knowledge and experience of addiction (Z-label). This means that physicians specialising in addiction treatment, who have secured a license and can demonstrate experience, outnumber psychiatrists when it comes to the prescription of Buprenorphine.

Willum also noted that Buprenorphine is primarily administered to patients at Vogur’s MAT (medication-assisted treatment) clinic in Reykjavík (in accordance with an agreement regarding opioid substitution treatment signed by Icelandic Health Insurance and SÁÁ) although a number of patients retrieve their drugs in tablet-form at pharmacies.

As noted by the National Library of Medicine, opioid-substitution therapy (OST) is an “evidence-based intervention” for opiate-dependent individuals, which replaces “illicit drug use with medically prescribed, orally administered opiates such as buprenorphine and methadone.”

OST/MAT programme responsible for reducing overdose rates

As noted in the Minister’s response before Parliament, individuals receiving opioid-substitution treatment (OST) have “increased significantly over the past years.” According to the minister, 276 people were enrolled in the treatment in 2019, compared to 438 in 2021.

SÁÁ’s medication-assisted treatment (MAT) clinic at the Vogur treatment centre has gradually expanded over the years and as of late summer treats 250 patients – most of whom have injected opioids or have suffered serious consequences as a result of their addiction. According to Dr Valgerður Rúnarsdóttir, the Medical Director of SÁÁ, MAT patients receive methadone, buprenorphine pills, or injections, which reduce withdrawal symptoms and cravings for opioids.

“There’s a low threshold for participation,” Valgerður stated. ‘We’d be seeing a much higher overdose rate if it weren’t for this programme. We also collaborate with other healthcare and social services to help people become sober. If we want to improve the lives of these people, these factors must be entwined.”

Although most of the patients in Vogur’s MAT are either sober or aspiring toward abstinence, there are also some who are not ready to quit. It is important to provide services to these individuals, and the City of Reykjavík, according to Valgerður, has greatly improved access to housing for this group of people over the past years. “Things are much better today compared to ten years ago,” she stated, adding that besides offering treatment and other services, removing stigma is also vital.

Ptarmigan Quota Increased for Upcoming Hunting Season

The Ministry of the Environment, Energy, and Climate has announced that the annual ptarmigan hunting season will begin on November 1 and conclude on December 4. This year’s hunting quota has been set at 26,000 birds, an increase of 6,000 from last year.

Poor recruitment in Northeast and West Iceland

Rock ptarmigan are still hunted in Iceland as they are considered a delicacy, often consumed on Christmas Eve. The Icelandic Institute of Natural History claims the preservation status the ptarmigan gained in 2003 has helped to significantly restore numbers. In May, the institute reported that the ptarmigan population was nearing its zenith in West and Northwest Iceland in the Westfjords while the population was likely declining in Northeast and East Iceland. In August, the institute reported poor recruitment in Northeast and West Iceland. The total ptarmigan population was estimated at just under 300,000 birds.

Yesterday, Guðlaugur Þór Þórðarson, Minister for the Environment, Energy, and Climate, announced the arrangement of this year’s ptarmigan hunting season. An announcement on the government’s website stated that hunting season shall last from November 1 to December 4, between 12 noon and sunset, from Tuesdays to Fridays. This year’s arrangement is similar to last year’s, with the exception that the quota has been increased to 26,000 birds, an increase of 6,000.

Hunters asked to show moderation

Guðlaugur Þór also asked hunters to show moderation in light of the recruitment failure in Northeast and West Iceland: poor weather conditions this spring and summer are the likely explanation. The minister further encouraged hunters to refrain from hunting in large numbers in Northeast Iceland. Lastly, the announcement iterates the ban on ptarmigan sales, which applies equally to the sale of ptarmigan to resellers and others.

“I’ve emphasised that the Environment Agency of Iceland should expedite the creation of a management and protection plan for the ptarmigan and that the arrangement of hunting season should based on that plan in the future,” the press release reads.

The statement adds that a timeline for the management and protection plan, which involves a high level of cooperation with interested parties, has been established and that the plan would likely be introduced in May of 2023.