Why isn't there deflation in Iceland?

The finacial sector goes crunch when spree of bad lending meets inevitable end and, well, isn't that a sign of impending deflation? The latest from Iceland:

The decline of the krona, which has lost half of its value since the start of 2008, has resulted in rampant inflation, which is now over 20 percent. Many people are seeing costs skyrocket, particularly on imported goods. Due to the high interest rates in Iceland, many people took out loans in foreign currencies where interest was lower. For them, costs have doubled.

The economy is set to suffer a severe contraction in the coming year. Lars Christensen, an economist from Dansk bank commented, "Given the base now, GDP will then fall at least 10 percent, or even 15 to 20 percent."

The crippling level of debt from the collapsed banks will exacerbate this problem. Recent analyses indicate that in total the banks' liabilities will cost Iceland 80 percent of its GDP.

What happened in Western economies is fundamentally no different than what happened in Iceland; indeed, Iceland is our lab bench experiment, our trial run. Eyes peeled.