Iceland's wage dispute threatens economic stability - IMF

May 20, 2015 9:18 AM

REYKJAVIK, May 20 (Reuters) - Iceland's settlement of wage disputes with workers, under pressure from trade union demands, could push inflation beyond a target and, combined with weakness in Europe, could delay its roll back of capital controls, the International Monetary Fund said on Tuesday.

The island nation, emerging from years of isolation and hardship following a financial meltdown in 2008, faces crippling strikes by bus drivers, nurses, hotel staff and others at the end of next week if no agreement on wages is struck.

The central bank targets an inflation rate of 2.5 percent and prices have been below that rate for some time. But it said last week it is likely to raise rates in June due to higher inflation expectations as a result of the wage dispute. (Reporting by Ragnhildur Sigurdardottir, writing by Sabina Zawadzki in Copenhagen; editing by Ralph Boulton)