Economic statistics - 01.02.1995, Blaðsíða 3

ECONOMIC STATISTICS
Vol. 16. 1. February 1995
Published quarterly by the Economics Department of the
Central Bank ot lceland, 150 Reykjavík, lceland.
ISSN 0256-193X
A new general wage settlement:
FOUNDATION FOR CONTINUED LOW INFLATION
AND ECONOMIC STABILITY
A new wage settlement was reached in the private sector when unions belonging to the
lcelandic Federation of Labour and the Confederation of lcelandic Employers signed new
wage agreements on 21 February 1995. The agreements are consistent with continued
low inflation in lceland and will not materially affect the relatively favourable position that
the traded goods sector in lceland has been experiencing recently. The agreements stip-
ulate relatively moderate wage increases over the contract period to the end of 1996, or
on average 3V2% in February 1995 and just over 3% at the beginning of 1996.
All wages increase by the same nominal amount,
implying a relatively higher increase of lower
wages, and there is a special increase of the low-
est wages. The details are as follows:
1. Monthly wages increase by 2,700 krónur from
the beginning of the contract period.
2. A special increase of low wages will amount to
1,000 kr. on monthly wages in the range of 43-
48 thousand kr., but will then fall gradually to
disappear on wages above 84 thousand kr.
3. Monthly wages will increase again by 2,700 kr.
at the beginning of 1996, but the increase will
be 3% for skilled workers and Christmas bonus-
es will increase by 2,000 kr. from December
1996.
Special contracts with individual unions are esti-
mated to increase wage costs by an additional
0.3%.
Prospects for inflation
The Economics Department of the Central Bank
estimates that if the above settlement is gener-
alised in the labour market, consumer price inflation
will be 21/2% in 1995 and 21/s-3% in 1996. This
means that inflation in lceland will have been at or
below that of its trading partners for three years in
a row. This shows that lceland has made a decisive
break with its inflationary past. Public sector
employees have still to reach a new settlement.
It is estimated that real wages will increase by
11/2% per year in 1995 and 1996 and productivity
increases, measured by GDP per employee, will
increase by roughly the same amount. The
increase in nominal wages in both years is expect-
ed to be somewhat higher than among lceland's
trading partners at the same time as productivity
growth will be slower. The real exchange rate will
Consumer prices
Percentage changefrom previous year
thus increase in these years, or by a total of 21/2%
measured by unit labour costs. But as this increase
comes after two years where unit labour costs
increases were much slower than abroad and the
nominal exchange rate was falling, the real
exchange rate will continue to be low relative to the
past, as can be seen from the accompanying dia-
gram (on next page).
Fiscal concessions
The government made a declaration in conjunc-
tion with the wage settlement in order to facilitate
the agreement, involving among other items some
fiscal concessions. The most significant points of
the declaration were:
Indexation of financial assets will from 1 April be
based on the consumer price index (see a separate
article).
From 1 April 1995 2% of the 4% contribution of
wage earners to pension funds will be tax
deductible, 3% from 1 July 1996 and the full amount
from 1 July 1997. The government declared that it