Wage Scale Increase
21. March 2025Wage Scale Increase Takes Effect on April 1
The Wage and Assumptions Committee for collective agreements in the general labor market, composed of representatives from ASÍ (the Confederation of Icelandic Labour) and SA (the Confederation of Icelandic Enterprise), held its first meeting on Friday, March 7. At the meeting, it was decided that the wage scale increase would take effect as of April 1.
This wage scale increase means that the pay scales in collective agreements will rise by 0.58% as of April 1, due to the wage index in the general labor market increasing beyond the agreed-upon scale increases tied to the reference wage scale during the first phase of the Stability Agreement.
The committee, which operates under the 2024–2028 collective agreements, is responsible for monitoring the development of the economy and its possible impact on the agreements’ goals of reducing inflation and lowering interest rates. The committee is also tasked with assessing the assumptions of the agreements in September 2025 and September 2026.
Inflation Decreasing and Purchasing Power Increasing
The main objective of the agreements is to contribute to reducing inflation and lowering interest rates. Inflation was measured at around 8% when preparations for the collective agreements began in autumn 2023. The Assumptions Committee agrees that the agreements have had a significant impact: inflation now stands at 4.2%, or 2.7% excluding housing costs. Wage earners’ purchasing power has increased in the first year of the agreement.
The Central Bank of Iceland began lowering interest rates in October of last year, and policy rates have dropped by 1.50 percentage points since the agreements were signed. At the same time, monetary policy has tightened, and real interest rates have increased.
Growing Uncertainty in Economic Outlook
There are grounds to expect continued disinflation in the coming months, along with further interest rate cuts. However, global economic uncertainty has increased, raising the risk that Iceland may be affected by growing international conflicts and trade wars.
The Assumptions Committee believes it is crucial for the government, the Central Bank of Iceland, and businesses to continue working toward the goals of the agreements, thereby creating the conditions for ongoing inflation reduction and interest rate cuts. The committee emphasizes the importance of state and municipal authorities cooperating with monetary policy, exercising restraint in tax increases, and taking targeted steps in housing development.