verðbólguna

Verðbólga is the Icelandic word for inflation. It refers to a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, verðbólga reflects a reduction in the purchasing power per unit of money.

High or unpredictable verðbólga can cause uncertainty, making it difficult for businesses and individuals to plan for the future. It can erode savings, particularly for those with fixed incomes. Central banks, such as the Central Bank of Iceland (Seðlabanki Íslands), typically aim to maintain a low and stable rate of verðbólga as a key objective of monetary policy. They often use tools like interest rate adjustments to manage the money supply and influence inflationary pressures.

The causes of verðbólga can be varied. Demand-pull inflation occurs when aggregate demand in an economy outpaces aggregate supply. Cost-push inflation arises from increases in the cost of production, such as rising wages or raw material prices. Imported inflation can also contribute, especially in smaller, open economies like Iceland, where changes in global commodity prices or exchange rates can affect domestic prices. Measuring verðbólga is usually done through consumer price indexes (vísitölur neysluverðs), which track the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.