Excerpts from the Ministry's Weekly Web Release August 30, 2002.

Excerpts from the Ministry of Finance's Weekly Web Release
August 30, 2002

Inflation and price forecasts
Inflation has changed dramatically in Iceland since the beginning of this year. The annualized rate of inflation has decreased from 9S percent in January, down to 3R percent in August, with predictions that it will be below 2 percent by the end of 2002. Estimates at the beginning of the year assumed a 3S increase for the whole year, whereas current estimates predict 1S - 2 percent increase.

The main reason for this advantageous price level development is the strengthening exchange rate. Price development predictions are generally uncertain, especially so with changing economic conditions such as are being experienced presently, where the recession is in remission but the upswing to follow is uncertain.

The developments over the last two years demonstrate the difficulties of predicting inflation. In the first six months of 2000, the exchange rate reached its peak, after which it started to fall and had by the end of 2001 dropped by 30 percent.

The effect of this exchange rate fluctuation on inflation is considerable as is evident from last year}s statistics. However, it is also clear that neither the increases nor decreses in exchange rates have generated any major changes in domestic price level. To some degree this may be due to the rather sudden nature of these fluctuations, not allowing for proper adjustment in the price levels. More importantly, several external factors have affected this as well, such as a changing competitive environment, effects of foreign price changes such as the price of oil, and finally government policies.

Regional unemployment
In mid August, figures published by the Bureau of Labour Affairs reveal unemployment levels of 2.3 percent, more than double the number of unemployed compared with the same time last year. Official unemployment figures have been on the increase since late 2001, and have measured betwen 2.3 – 2.7 percent ever since.

There is considerable regiona variation in the figures, with unemployment decreasing in rural Iceland, while it has been steady and considerably higher in the capital region. Unemployment equally shows gender variations, with 1.8 percent unemployment for men and 3 percent for women; for women in the capital area that figure reached 3.5 percent.

In recent years, unemployment has been almost non-existent in Iceland. In fact, there does not appear to be an employment problem when thousands of workers from abroad are brought to Iceland for labour to respond to the demand. Instead, there is a general imbalance between the supply and demand in the labour market.

Public contribution to health care affairs
According to the latest OECD-figures, public contribution to health care affairs are higher in Iceland than in any other OECD country. Total public and private expenditure surpassed that of the USA, Switzerland and Germany where patients are required to pay a much larger percentage of health care. Public funding provides for the largest amount of contribution to health care in Iceland compared with the other OECD countries, the equivalent of 2 200 USD per person. This is particularly interesting in the light of the age structure of the nation, with a much younger population than most of the other countries which shold reduce health care expenditure. Not included in these statistics are Luxembourg, Sweden and Turkey as statistics are not available.

The development of in health care expenditure reveals a considerable growth during the last decade. In 1970, the expenditure measured 3.2 percent of GDP; in 1980 it had reached 5.5 percent and in 1990 the expenditure measured 6.8 of GDP. At the end of the 1990}s, the expenditure measured somewhere in the region of 7.5 percent.






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Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland