“Average household expenditure is 442 thousand ISK a month or 183 thousand per individual, i.e. 3.1% lower than in the previous survey per household. The expenditure per individual declined by 4.6%. The CPI rose by 5.4% between 2009 and 2010, hence the real household expenditure declined by 8.0%. This is equivalent to 9.5% decrease per individual in real terms. Disposable income rose by 3.6% per household and by 2.0% per individual.“
The graph above shows the changes between years in CPI from 1988. What is interesting to note is that CPI has been going up irrespective of Capital Controls since 2008 and a hawkish stance from the Central Bank of Iceland. What this tells me is that the policy tools in Iceland employed by the Central Bank of Iceland does not work. How does one fix this problem? I have written about one solution. Inflation is a bad thing, one simple reason why this is the case is because it is like a cancer that eats into the asset values in an economy that is why every Central Bank takes an Hawkish stance to control the supply of money or not, like Zimbabwe or Greece before they joined the EU. Central Banks have the authority to print money but there needs to be something worthwhile against those printed currency if the economy does not produce valuable goods and services then it only leads to too much money chasing too few goods and services and result in Inflation. The trend is Iceland is giving me a heart burn. There have been no new industry or goods and services created, overall household consumption is going down, the government consumption is going up and change in CPI between years is upward trending, in addition to this the Real Estate market prices are being driven up by all the pent up currency before the collapse. All this can lead to only one thing rising prices of assets and which ultimately leads to a bubble and we all know what happens to bubbles.