The chair of VR has criticised the Central Bank’s high interest rate policy. She says there is little sign of government action on housing issues, while high interest rates reduce housing construction.
Inflation is a home-made problem that affects home buyers and consumers but delivers increased profits to large companies and capital owners. This is according to Halla Gunnarsdóttir, chair of union VR, in a guest article in Morgunblaðið yesterday.
She focuses in particular on the Central Bank, which she says must start thinking outside the box.
Halla writes her article in the run-up to the Central Bank’s announcement next week of its decision on interest rates.
Hopes for a rate cut have diminished after inflation has remained more or less steady in recent months.
Halla says interest rates must be lowered because they cause immeasurable damage.
Inflation did indeed begin because of mismanagement in housing affairs and increases due to the war in Ukraine and covid, but now it is mostly a home-made problem.
High interest rates do not build houses; in fact, they hamper housing construction and contribute to persistent inflationary pressure. High interest rates also do not stop the profit-seeking of companies that increase their profits year on year at times when they should be holding back.
Confectionery producers have raised prices citing higher world market prices for cocoa, and meat continues to rise in price thanks to consolidated producers, says Halla.
The chair of VR says that the harsh application of interest rates not only bites in the wrong places but is not suited to bringing down inflation.
It is now essential that the Central Bank think outside the box and face up to the systemic drivers of inflation in the Icelandic economy, which are the housing market along with profit-driven price increases.
She says that the opportunity cost of high interest rates and housing prices increases poverty, class division and inequality between generations.
Interest rates must be lowered, the government needs to take action and municipalities must increase the number of buildable plots.
The Central Bank’s next interest rate decision will be announced next Wednesday. The collective agreements contain termination clauses if inflation rises above 4.95 percent. It is now 4.0 percent.
Both Halla in her article and Finnbjörn Hermannsson, president of the Icelandic Confederation of Labour, in news reports last week, have expressed concerns that inflation will be close to that threshold when the review clauses in agreements come.
Source: Ruv.is
