5.6% in August, the Highest Level in Two Years, Sparking a Dispute Between Labor Unions and the Government Over the Causes

The rate is high enough to trigger a clause allowing for the review or termination of collective wage agreements signed in 2024. Finnbjörn A. Hermannsson, president of the Icelandic Confederation of Labour (ASÍ), called the figure disappointing but not surprising. He said the labor movement had urged businesses, the state, and municipalities to hold back on price increases to bring inflation down. "That has not happened." And there, the state and municipalities have led the way and been the most aggressive, Hermannsson said.

Finance Minister Daği Már Kristófersson rejected that claim. "There has been a lot of talk about increases in public fees driving this. In fact, there is one item? airfares? that accounts for half of the increase this year," he said.

Kristófersson added that levies had not been raised beyond what is customary. The minister said the state is ready with proposals, and an agreement must be reached on measures to lower interest rates and inflation. A temporary reduction in value-added tax on fuel expires at the end of the month, and Kristófersson said there are no plans to extend it.

The National Economic Council meets tomorrow to review the situation. Bjarni Benediktsson, chairman of the Confederation of Icelandic Enterprise, said it is a great disappointment that little progress has been made in talks over the past year. He said domestic actions play a large part in the rising inflation.

"There have been certain external factors that cannot be controlled. However, it is clear that decisions by public entities? both utility companies and the government around the new year, with product taxes and tariff increases? are being measured in the inflation," he said.

Benediktsson said everyone must work together to prevent the termination of wage agreements, and short-term measures are not enough. "We need to restore faith and trust in what comes next. We cannot give up on this task.

So much is at stake, for households, for businesses, and the public sector also has a great deal riding on inflation decreasing here in the country." Hermannsson said wage earners will not pay down inflation alone. "If they promise not to raise prices? those big players in the market that have been passing their costs onto workers? if they join hands with us too, then there is every possibility that we will not terminate the wage agreements.

But wage earners alone in this country will not pay down inflation," he said.