Real wage growth has eased in recent quarters, although Icelandic households have benefited from stronger growth in the recent past than those in neighbouring countries. The newly landed wage agreements will also boost purchasing power in the quarters to come. Modest real wage growth and relatively slow population growth will probably cause private consumption to rise less in 2019 than in the past few years, as Icelandic households currently appear unwilling to finance spending growth with credit.
Weaker growth in wages and purchasing power
The Statistics Iceland (SI) wage index rose by 0.2% in March and has risen by 5.5% in the past twelve months. The pace of the increase has eased gradually in recent months, as wage agreements for large segments of the work force expired at the turn of the year and re- negotiations proved lengthy.
Given that the CPI jumped 0.5% in March, the above-mentioned rise in the wage index translates to a 0.3% drop in real wages for the month. However, real wages as measured by the wage index have grown 2.5% in the past twelve months.