News - 12.06.2026

Wage Increases Have Little Impact on Inflation

There was strong interest in the breakfast meeting hosted by VR, LÍV and Fagfélögin, held June 11. The title of the meeting was “The Chicken or the Egg?” The discussion focused on the interaction between inflation, prices and wages at a time when there are warning signs in the economy and much suggests that the assumptions underlying the current collective agreements may not hold when the agreements are reviewed this autumn.

Jakob Tryggvason, Leader of RSÍ, opened the meeting. He was followed by presentations from economists Viðar Ingason of VR and Vilhjálmur Hilmarsson of the union Viska, after which a panel discussion took place. In addition to Viðar and Vilhjálmur, the panel included Henný Hinz, Deputy Managing Director of ASÍ, and Páll Gunnar Pálsson, Director General of the Icelandic Competition Authority. The meeting was moderated by Halla Gunnarsdóttir, Leader of VR.

Wages Follow Prices

In his presentation, Viðar reviewed Icelandic and international research on the causes of inflation. Among other things, he referred to studies indicating that wage increases have little or no measurable effect on inflation and that inflation is instead driven by factors such as international price developments and the exchange rate of the Icelandic króna. He also pointed out that collective bargaining negotiations often respond to price increases that have already occurred and that international research shows that prices frequently rise first, with wages following later.

Hourly Wage Purchasing Power Comparable to Europe

Vilhjálmur Hilmarsson of Viska discussed price levels in Iceland and pointed out that Iceland has for many years been considerably more expensive than other European countries. According to the data he presented, prices in Iceland are currently around 84 per cent higher than the average across 27 European countries. Over a 30-year period, Iceland has on average been just over 40% more expensive than Europe.
He also stated that the purchasing power of hourly wages in Iceland is not high by international standards. Iceland is on par with the European average, while Norway, Denmark, Luxembourg and Germany have significantly greater purchasing power. Vilhjálmur pointed out that limited competition makes it easier for companies to pass cost increases on to consumers through higher prices.

No Competition Authority Without the EEA

The panel discussion also covered the state of competition issues in Iceland, price monitoring and the impact of market conditions on price formation. Páll Gunnar Pálsson said it was important to increase competition and create incentives for greater efficiency in business operations. In a competitive environment, companies are forced to pay closer attention to their operations. Discussing the European Union, Páll said that in his view it was entirely clear that without participation in the EEA Agreement, the Icelandic Competition Authority would not operate in Iceland.

Henný Hinz spoke, among other things, about the importance of price monitoring and said that it is difficult for the public to be informed consumers in an environment where prices change rapidly.

As previously noted, the meeting was well attended. It was also streamed online. The panel participants agreed on the importance of holding more meetings to discuss these issues in greater depth.