Kostnaðarliðun

Kostnaðarliðun is an Icelandic term used primarily in economic discussion to describe a cost‑driven deterioration of a firm's profitability or of the overall economy. The word combines kostnaður, meaning “cost”, with liðun, meaning “slowing or decline”, implying a downward pressure caused by rising inputs such as wages, raw materials, or energy. In practice, kostnaðarliðun refers to scenarios where production costs increase faster than prices, eroding margins and triggering layoffs or higher consumer prices.

The concept is analogous to the English notion of cost‑push inflation, where supply‑side constraints raise production costs and, in turn, raise the price level. Economists studying Iceland’s post‑2008 recovery frequently cite kostnaðarliðun when analysing the country’s high oil‑fuel taxes and energy prices that have amplified manufacturing overheads. When the government raises taxes on carbon or coal, analysts often predict a spike in kostnaðarliðun that may dampen growth.

Policy responses to kostnaðarliðun typically involve subsidies for energy‑intensive sectors, tax incentives for capital investment, or targeted wage controls to balance supply and demand. The term is used mainly in academic papers, governmental reports, and media commentary. Because it is a fairly niche, Icelandic‑specific term, English‑language literature rarely employs it. Nevertheless, the idea encapsulated by kostnaðarliðun is central to discussions about structural adjustment in small, open economies where price sensitivities differ markedly from large industrialized nations.