Economic statistics - 01.05.1986, Blaðsíða 4

offsetting cost of living increases amounting to
around 4%, and reducing costs in order to help the
industries to live with a stable exchange rate. Cust-
oms and excise duties on cars, household appli-
ances, tires and vegatables were reduced, the direct
effect on the cost of living index being around 2%. A
16% price equalization tax on electricity and a 21/2%
pay-roll tax in fish processing and manufacturing
were abolished, the former change reducing the cost
of living index immediately by 1/4%, butthe second by
0.1-0.2% over a period of several months. Agricult-
ural subsidies were increased, reducing the cost of
living index by 1/2%. Lower public services and utili-
ties charges, mainly for electricity and geothermal
hot water, reduced cost of living by 1/2%, and lower
domestic petrol and oil prices were estimated to
reduce it by 0.6%.
- The government approved the main outlines ofthe
new system of housing finance agreed on between
the Federation of Labour and the employers organi-
zations. The necessary legislation has now been
adopted. In this new system a much higher part of
home building and buying will be financed by long
term loans granted by the state building funds at
subsidised interest rates. The pension funds will
reduce their lending to individuals and increase their
lending to the state building funds and the Treasury
instead. Flome buyers will feel the change in con-
siderably reduced annual debt servicing.
exchange rate was around 11/2% lower in April than
at the end of January due to the fall of the dollar. The
arbitration committee decided to take full account of
this, so that wage rates increased by 3.06% on June
1. This did not change the prospects for inflation in
1986 much and it is not expected that the cost of liv-
ing will diverge much from the ceilings in August and
November.
Treasury finances
The effects of these various measures on Trea-
sury finances in 1986 are estimated to change a
positive revenue balance amounting to 163 million
krónur in the original budget to a revenue deficit
amounting to 1.6 billion krónuror 1.1% of predicted
GDP. The Treasury intends to finance this deficit
mainly on the domestic credit market and thus net
domestic borrowing outside the Central Bank is pro-
jected to be 1.4 billion krónur. The housebuilding
funds will increase their domestic borrowing at the
same time. Gross domestic borrowing by the Trea-
sury and the housebuilding funds is projected to be
around 5.4 billion krónur or 3.8% of GDP compared
to 3% in 1985 and 1.8% in 1984. This increased do-
mestic credit demand by the public sector will put
upward pressure on domestic real interest rates.
Inflation
Inflation in lceland will this year be in a single digit
for the first time since 1971. The cost of living will in-
crease by 81/2% overtheyear, butother measuresof
the price level will increase slightly more, or around
10%. Figure 1 puts inflation in 1986 in a historical
perspective, but figure 2 shows its development over
the year. This prediction is made afterthe cost of liv-
ing index for May had been made public, but it sur-
passed the ceiling by 0.55% mainly because the
Real incomes
Real wage rates will increase in the course of the
year but be unchanged between years. Real wages
will be 11/2% higher during the fourth quarter than
during 1985 as a whole, and 31/2-4% higher than
during the first quarter. Real earnings are predicted
to increase more than real wage rates, or by 4-5%
between years, but real disposable income by less,
or 3-4%.
Figure 2