65° - 01.07.1968, Blaðsíða 8

Inflation in Iceland
by
JONAS HARALZ
During the entire post-war period Iceland has
had severe inflation. Temporary stabilization has
been achieved time and again, but the under-
lying inflationary forces have always broken
through within one or two years. Over the period
as a whole, the average rate of inflation, as
measured by the cost of living index, has been
close to ten per cent per year with no discernible
tendency to either accleration or deceleration.
The Icelanders themselves are ashamed of their
record of inflation and regard it as an indication
of the immaturity of their society. They are apt
to compare themselves, first, with their Scandi-
navian neighbours and, second, with other deve-
loped Western European nations, which have
largely escaped severe inflation through most of
the post-war period. Foreigners who visit Iceland
also tend towards a similar reflection. They ob-
serve the country’s high standard of living and
the similarity of its society and culture to those
of its neighbours and they find it difficult to
understand how the Icelanders can continuously
succeed to mismanage their affairs at the rate
of a ten per cent inflation per year.
It will be the contention of this article that this
view, shared commonly by Icelanders and foreign
visitors, is indeed a highly superficial one; that
inflation in Iceland is the expression of strong
social forces making themselves felt all over the
world, and that it is a measure not so much of
the nation’s immaturity as of its high aspirations
to maintain a complete, modern society on an
island bordering the Arctic Ocean, large in size
but short in natural resources, and with a popula-
tion of only two hundred thousand.
During the post war period inflation has been
a worldwide phenomenon, common to both in-
dustrial and less developed countries. A few
countries, mainly in southern South America,
have had very high inflation, 20 per cent per
year or more, during the entire period. Others
have had sharp outbreaks of shorter duration.
Among the countries which have more or less
consistently had severe inflation of a similar
magnitude as Iceland, i.e. 5 to 10 per cent per
year on the average, are the industrial countries
France and Japan and the less industrialized
Mediterranean countries, Spain, Greece, Turkey
and Israel. It is not always realized by the Ice-
landers, that even the Scandinavian neighbors,
which they respect and admire so much, have had
the fairly severe degree of inflation of 4 to 5 per
cent per year in the average over the post war
period. On the other hand, contrary to what is
commonly believed, the less developed countries,
of all continents, show a greater degree of price
stability than the industrial or other developed
countries, if a few countries with extreme infla-
tion are excluded. Whatever the origins of in-
flation may be, they certainly do not seem to
have much relation to economic or political im-
maturity.
A modern society pursues a number of eco-
nomic goals: rapid economic growth, high stand-
ard of living, full employment, relative price sta-
bility, and balance in external transactions, to
mention the most important ones. The emphasis
on one or another of these goals may differ from
country to country and from time to time. But
no society can for any length of time escape the
attempt to seek most or all of these goals, without
otherwise isolating itself from the mainstream of
contemporary life. What is more, in a democratic
society these goals have to be pursued in the
Since finishing studies at the University of Stock-
holm in 1945, Jonas Haralz has held various posts
as economist within Iceland and also with the
International Bank, EFTA and EEC, and in deve-
lopment programs for Honduras, Mexico, Peru,
Venezuela and Ghana. He is alternate Governor
for Iceland of the IMF, and currently director of
the government Economic Institute in Reykjavik.
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