Iceland prepares to hike rates despite low inflation
Central bank concerned by prospect of 'very large' pay rises
The Central Bank of Iceland is likely to hike rates at its next meeting it has said, amid strong demand growth and what it terms "unrest" in the labour market.
The central bank's latest monetary bulletin, published today (May 13) explains current wage negotiations are expected to yield "very large" pay increases. Workers received large pay rises last year as well, which combined with "broadly flat" productivity pushed unit labour costs up "sharply".
Inflation in Iceland is well below the 2.5%
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