News - 21.03.2025

VR Pay Scales Increase as of 1 April

Pay scales according to VR collective agreements will increase by 0.58% as of 1 April, with the increase being paid at the end of April/beginning of May. This is the conclusion of the Wage and Condition Committee for collective agreements in the general labour market.

An additional pay scale increase was negotiated in the last collective agreements. Its purpose is to ensure that those who are paid according to scales keep up with wage developments and receive an increase if wages in the labour market rise more than the lowest scale wages. This has materialised in the first year of the agreement. The additional increase to the pay scale is equivalent to the percentage by which Statistics Iceland's wage index has increased beyond the reference wage scale increase. This increase applies only to pay scales – see here for the pay scales effective from 1 April 2025. The Wage and Condition Committee will review this development again in March 2026 and 2027.

The statement of the Wage and Condition Committee is published below.

Additional Pay Scale Increase Effective 1 April

The Wage and Condition Committee for collective agreements in the general labour market, composed of representatives from the Confederation of Icelandic Labour (ASÍ) and the Confederation of Icelandic Enterprise (SA), convened for its first meeting on Friday, 7 March. At the meeting, it was determined that the additional pay scale increase will take effect as of 1 April. This additional increase entails that the pay scales in collective agreements rise by 0.58% as of 1 April and is due to the wage index in the general market having risen beyond the agreed scale increases of the reference scale during the first period of the stability agreement.

The committee, which operates under the collective agreements for the years 2024–2028, is tasked with monitoring the progress of the economy and any potential effects on the agreement's objectives of reducing inflation and lowering interest rates. The committee is also responsible for evaluating the premises of the agreement in September 2025 and September 2026.

Inflation Down and Purchasing Power Increased

The main goal of the agreements is to contribute to reducing inflation and lowering interest rates. Inflation measured around 8% when preparations for the collective agreements began in autumn 2023. The condition committee agrees that the agreements have yielded significant results—current inflation stands at 4.2%, or 2.7% when housing prices are excluded. Purchasing power has increased during the first year of the agreement.

The Central Bank began a cycle of interest rate reductions in October last year, and policy rates have been cut by 1.50 percentage points since the agreements were made. At the same time, monetary policy has become more restrictive and real interest rates have increased.

Increased Uncertainty about Economic Outlook

Conditions remain in place for continued disinflation in the coming months and thus further reductions in interest rates. However, global economic uncertainty has increased, raising the risk that Iceland may be affected by escalating international conflicts and trade wars. The condition committee considers it vital that the government, the Central Bank of Iceland, and businesses continue to work toward the goals of the agreements, thereby laying the groundwork for continued reduction in inflation and interest rates. The committee also stresses the importance of central and local governments aligning with monetary policy, exercising restraint in levying fees, and taking targeted steps in housing development.