Increase in Overnight Stays Among Icelanders

Having fun at Gullfoss waterfall

According to the short-term indicators on the tourism industry recently released by Statistics Iceland, more Icelanders stayed in hotels than in the year previous. Simultaneously, a slight drop in the number of foreign overnight stays was also measured.

Slight decrease in overnight stays

Total overnight stays in March 2024 amounted to 428,197, compared with 423,554 in March 2023. This represents a slight decrease of around 1%.

Notably, the number of overnight stays by Icelanders increased significantly year-on-year, with March 2024 seeing 85,136 overnight stays, a 10% increase from March 2023.

Overnight stays from foreign visitors did, however, slightly decrease. In total, foreign travellers bought around 343,000 hotel overnight stays in March of this year.

Slight decrease in air traffic year-on-year

Among the other statistics released in the report are numbers on air traffic. In the short-term indicators recently published, there was a slight decrease in the total number of passengers and flights. In April of this year, some 5,409 flights arrived and departed from Keflavík International Airport, a decrease of around 7%.

Despite the slight decrease in air traffic, the tourism industry continues to grow. In February 2024, travel companies turned over almost 109 billion ISK [$788 million, €725 million], which is a 10% increase year-on-year.

Other trends that can be seen in the latest statistics include a decrease in road traffic across much of the Ring Road, though road traffic in South Iceland increased by 4%. The total number of rental cars also increased, growing from 27,432 in May 2023 to 29,827 in May 2024. This represents an increase of 9%.


Wage Agreements Signed; Keflavík Airport Strikes Averted

Keflavík Airport

Strikes at Keflavík International Airport have been averted following the signing of agreements between the Confederation of Icelandic Enterprise on behalf of ISAVIA, and the labour committees of the Union of Aviation Workers and Sameyki. The agreements, resulting from prolonged negotiations, will now be presented to union members for a vote, concluding by late May.

Strike action called off

Yesterday, agreements were signed between the Confederation of Icelandic Enterprise (SA) on behalf of ISAVIA and the labour negotiation committees of the Union of Aviation Workers (FFR) and Sameyki, a nationwide union of public servants. The strikes that had previously been announced at the Keflavík International Airport have been called off.

As noted in an article published in IR last weekend, negotiations for a new collective bargaining agreement had been ongoing since last September, with the labour dispute being handed over to the Office of the State Mediator on April 8.

As reported by Vísir, State Mediator Ástráður Haraldsson expressed satisfaction with the parties reaching an agreement. He noted that people are generally not overly joyous after wage negotiations – but he hoped that everyone was “reasonably dissatisfied.”

The agreements will be presented to the members of Sameyki and FFR, who will subsequently vote on them.

A desired balance struck between negotiating parties

In an interview with Vísir, Þórarinn Eyfjörð, Chairperson of Sameyki, stated that the negotiating parties had achieved the desired balance between their interests. Þórarinn added that the unions were quite pleased with the outcome, although “one is never completely satisfied when signing wage agreements.”

Þórarinn characterised yesterday’s negotiations as “a tough working day” with many positive developments, although one never fully achieves all their goals.

As noted by Vísir, the union members’ vote on the agreement will conclude around May 20. Þórarinn expressed confidence in taking the agreement to the members, noting that an information campaign will now begin, followed by a voting process just before May 20 expected to end between May 23 and 24.

Þórarinn remains optimistic about the agreement’s approval, though he acknowledged that nothing could be guaranteed.

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Iceland’s Central Bank Holds Interest Rates Steady

Central Bank Ásgeir Jónsson seðlabankastjóri

The Central Bank of Iceland has opted to maintain its current rates at 9.25% for seven-day term deposits. This decision reflects ongoing economic tensions and slower than expected declines in inflation, despite recent wage agreements and fiscal measures.

Hopes of lower interest rates

Speaking to RÚV yesterday, Finance Minister Sigurður Ingi Jóhannsson stated that he believed the Central Bank had the leeway to lower interest rates based on current economic conditions. He specifically mentioned new wage agreements and modest expenditures in the government’s budget.

The Finance Minister’s hopes were dashed this morning, when the Monetary Policy Committee of the Central Bank of Iceland decided to keep the bank’s interest rates unchanged. The main rate of the bank, the interest on seven-day term deposits (the type of bank deposit account where funds are locked in for a short period of seven days), will therefore remain at 9.25%.

As noted in a press release on the Monetary Policy’s decision, inflation has continued to decrease and was measured at 6% in April: “Inflation excluding housing has decreased faster, and core inflation is now at 5%. Inflation expectations have declined on some measures but are still above target.”

The press release further notes that “the growth of domestic demand has slowed as monetary restraint is tight” and “a slowdown in economic growth is expected this year.” Nonetheless, tensions in the national economy are greater than previously thought, and inflation is decreasing more slowly according to the Central Bank’s new forecast.

Apartment prices impacting CPI

The new Monetary Bulletin, published by the Central bank, sheds further light on the state of inflation in Iceland. As noted by RÚV, the Bulletin notes that price increases in public services and housing, particularly due to a rise in apartment prices in rural areas, had the greatest impact on the consumer price index this quarter.

“Apartment prices have recently increased significantly, especially in Reykjanes. Residents of Grindavík seeking new homes due to seismic activity play a major role in this trend. Prices for groceries and general services saw a moderate rise in the first quarter,” RÚV reports.

Effects of wage agreements, fiscal measures not yet evident

As noted by the Monetary Policy Committee, the effects of recently concluded wage agreements and fiscal measures on demand have not yet fully emerged, despite the Finance Minister’s hopes. “Although the labour market has slowed, there is still tension that could push wage drift with corresponding effects on inflation.”

The Monetary Policy Committee believes there are increased chances that the current level of restraint is sufficient to bring inflation to target within an acceptable time frame.

As of May 8, 2024, the interest rates are as follows:

Overnight loans 11.0%
Collateralized loans for 7 days 10.0%
Seven-day term deposits 9.25%
Transaction accounts 9.0%

This article was updated at 10:21 AM

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Airport Strikes to Begin in May

Keflavík Airport

The union of aviation workers and Sameyki, a nationwide union of public servants, have agreed to strike action at Keflavík airport starting 9 May, Vísir reports.

Negotiation standstill

Around 80% of the aviation workers union approved the action. Negotiations for a new collective bargaining agreement have been ongoing since September 2023 and the labour dispute was handed over to the State Conciliation and Mediation Officer on 8 April.

On 28 April, aviation workers felt that negotiations with SA Confederation of Icelandic Enterprise on behalf of Isavia, the national airport and air navigation service provider of Iceland, had come to a standstill.

Departures halted

The strike action will begin at 4 PM on 9 May with a ban on overtime and training. Airport security workers will strike from 4 to 8 AM on Friday 10 May, Thursday 16 May, Friday 17 May and Monday 20 May.

Unnar Örn Ólafsson, head of the aviation workers union has said that these four hour work stoppages should halt departures and that they were chosen because of how they impact the airlines. “Passengers will not be able to enter if the security check is closed,” he said. “It will also take longer to load passengers into the airplanes.”

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Iceland Sees Lowest Inflation Rate Since January 2022

Nettó Hagkaup Bónus Iceland Fjarðarkaup

Inflation in Iceland has dropped to 6%, the lowest since January 2022. The consumer price index, however, rose by 0.55% this month.

Slight rise in the consumer price index

Inflation has dropped by 0.8% points month-over-month, currently measuring at 6%, Statistics Iceland reports. This is the lowest rate since January 2022, when it was recorded at 5.7%.

The consumer price index, however, has risen by 0.55% month-over-month. Excluding housing costs, the index has increased by 0.3% since last month.

The cost of housing, heating, and electricity has increased by 12.3% year-over-year, while the prices of food and beverages have risen by 5.6%.

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Real Estate Sales Nearly Double, Rent Prices Rise

architecture downtown Reykjavík houses

Real estate sales in Iceland nearly doubled between January and February of this year, according to the latest report from the Housing and Construction Authority. The jump is most noticeable in municipalities near the capital area. In Reykjanesbær, not far from the evacuated town of Grindavík, the number of sales tripled between January and February.

Rental prices rise

In Akranes, just one hour north of Reykjavík, the number of real estate sales more than doubled, while in Árborg, South Iceland, they nearly doubled. Rental prices also rose faster than general price levels, according to the report. This was especially true on the Suðurnes peninsula, where Grindavík is located, where rental prices are 16% higher now than they were in September 2023. Rental prices rose 3-9% in the capital area during the same period.

675 Grindavík properties wait for government buyout

The town of Grindavík (pop. 3,600), located on the Suðurnes peninsula, was evacuated in November 2023 due to seismic activity. The town has since seen four volcanic eruptions just to the north, in the Sundhnúkagígar area. Three houses were destroyed in the January eruption and the Government has since offered to buy homes from Grindavík residents if they choose.

On April 12, the first such purchase was approved, and 675 others were waiting to be processed. For comparison, an average of 625 real estate purchase contracts were registered in the capital area and neighbouring municiaplities each month last year. This means that the property purchases of Grindavík residents who are relocating could equal the region’s total monthly demand.

Grindavík residents say the government buyouts are proceeding too slowly, impacting their ability to relocate in the heating-up housing market. They have called a protest for this afternoon in front of Alþingi, Iceland’s Parliament.

Financial Hurdles and Land Shortages Stifle Housing Growth

Miðborg Reykjavíkur - tekið úr byggingakrana

The Housing and Construction Authority (HSM) reports that new apartment construction has decreased by 9.3% compared to last year, and only 56% of the estimated housing need will be met next year. The CEO of a local construction company has attributed the shortfall in housing to governmental inaction, high financing costs, and insufficient land availability.

Only 56% of housing needs met

As noted in a recent report by the Housing and Construction Authority (HSM), construction has commenced on 9.3% fewer apartments compared to the same period last year. The scope of new projects has also contracted by a third year-on-year while the number of apartments is at the same stage of progress as they were a year ago. Furthermore, HSM expects 3,020 fully completed apartments this year and 2,768 apartments next year, which would only meet 56% of the estimated housing need.

In an interview with the evening news on Stöð 2 yesterday, Gylfi Gíslason, the CEO of the construction company Jáverk, traced this state of affairs to governmental inaction in matters of housing; high financing costs and a lack of land availability were slowing down construction.

As noted by Gylfi – and substantiated by HSM’s recent report – it is necessary to build twice as much as is currently being done to meet housing needs, and, due to this, significant price increases are expected soon. Indeed, HMS has for several months highlighted that not enough is being built in the country relative to population growth, Vísir notes. Gylfi added that this situation was anticipated.

“Land is needed to build houses, and the cost of capital has been too expensive due to interest rates. Furthermore, a decision was made, over a year ago, and without prior warning, to increase taxation – vis-a-vis a reduction in the VAT refund on new buildings. All of this has had an impact. In the long term, we just need a greatly increased supply of land,” Gylfi remarked.

Asked about the government’s actions over the past months regarding the situation, Gylfi replied that little had happened: “An increased supply of land has not yet materialised. Interest rates are at their highest. Everyone in this market predicted it would be like this. Perhaps it is only now becoming a reality.”

When asked if government action was coming too late, Gylfi replied thusly: “Yes, yes. Or maybe we just want it this way. That’s quite possible. There was a desire to reduce economic overheating. It was criticised that this was happening on both the supply and demand sides. It was done, and I believe that these consequences are becoming visible if these forecasts prove correct,” Gylfi concluded.

Residential property prices risen by 5.2%

As noted in a recent article on the HMS website, over the past twelve months, residential property prices have risen by 5.2%, with the annual increase reaching 5.7% in February.

The new residential price index rose by 0.8% month-on-month in March, compared to a 1.9% increase in February. Since the start of the year, residential prices have been rising faster in rural areas than in the capital region.

In March, single-family homes in the capital region increased by 1.1% month-on-month and have now risen by 4.6% over the last twelve months. Multi-family homes in the capital region increased by 0.6% month-on-month and have risen by 4.9% over the past twelve months.

Landsvirkjun Restrictions to Last Longer than Expected

Landsvirkjun, the National Power Company of Iceland, has had to restrict power supplied to industrial production companies to a greater degree than expected, RÚV reports.

Though the power company often reduces its production in the winter, poor reservoir conditions have led to a greater than usual reduction in service. The reductions could have an impact in the hundreds of millions of ISK.

Nearly 10% of power

The reduction began shortly before the new year, and now amounts to around 10% of power delivered to industrial production companies.

In a statement to RÚV, Director of Management Valur Ægisson stated that the ongoing restrictions can be chalked up to poor water flow, as water levels in reservoirs have dropped rapidly. He cited that Blöndulón, a reservoir in North Iceland, has never been this low at this time of year.

The restrictions were initially applied to fish processing plants and data centres. However, restrictions were then also applied to industrial plants such as Elkem, Norðurál, and Rio Tinto.

Waiting for spring

Valur stated further to RÚV that the extent of the restriction amounts to tens of gigawatt-hours per month. The average monthly sales of Landsvirkjun are around 1250 gigawatt-hours.

The restrictions could result in considerable lost revenue for Landsvirkjun. “I can’t give an exact figure, but it measures in hundreds of millions,” stated Valur to RÚV.

Like much of the nation, the situation has the energy company waiting on the arrival of spring and the accompanying meltwater.  “That’s essentially what we’re waiting for, for warmer weather, rain, and see the snow melting in the highlands. When that happens, we can turn things around relatively quickly,” Valur stated.



March Labour Report Shows Slight Decrease in Unemployment

reykjavík construction

The monthly report issued yesterday by the Directorate of Labour shows a slight decrease in March unemployment numbers.

The Directorate of Labour report shows March 2024 unemployment rates sitting at 3.8%, a decrease from February’s rate of 3.9%. In total, the report shows an average of 7,518 unemployed individuals in March 2024.

Differences by gender, region

Of the total unemployed in March 2024, some 4,344 were men, and 3,174 were women.

There were also some regional differences in unemployment. As might be expected, unemployment rates were higher on the Reykjanes peninsula, the area affected by the ongoing eruptions near Grindavík. Unemployment on the Reykjanes peninsula was recorded at 6.5% for March 2024, a slight decrease from 6.9% in February.

Unemployment rates generally went down for the entire nation except in the capital region. In the capital region, rates remained stable at 3.8%.

North Iceland saw the lowes rates, at 1.5%, and the next-lowest rates were recorded in East and West Iceland, around 2.7%.

Other figures from the report

A total of 283 new jobs were advertised in March through the Public Employment Service.

In March, 81 individuals received recruitment subsidies within companies or institutions, and eight individuals received start-up subsidies.

In March 2024, the Public Employment Service issued 142 work permits to foreign nationals to work in Iceland, 110 of which were in the capital area.




Easter Egg Price Wars Result in Modest Discounts

A broken Icelandic easter egg and the candy inside it.

The price of Easter eggs has gone down in the last couple of weeks as stores compete with pricing strategies. The cheapest chocolate treats can be found in Bónus, Extra and Krónan, while the most expensive eggs are in 10-11, Iceland and Krambúðin, Vísir reports.

In Iceland, Easter eggs are topped with a figurine, most often a yellow chick, and filled with candy along with a piece of paper with a proverb written on it. They are a ubiquitous part of Easter festivities among Icelandic families.

Big difference between stores

The Icelandic Confederation of Labour (ASI) has reviewed the prices of Easter eggs and found that the lowest prices have gone done by a few percentage points. On March 8, Heimkaup lowered their prices, with Extra, Bónus and Króna following suit.

The three stores where prices remain unusually high are 10-11, where the Easter eggs cost on average a whopping 40% more than the lowest prices, and Iceland and Krambúðin with a 38% and 37% deviation respectively. The biggest difference was on the price of a small “lava egg” from candy company Góa, which cost ISK 140 [$1, €0.90] in Krónan, but ISK 249 [$1.81, €1.70] in 10-11.

Bónus leads the way

Bónus consistently had the lowest prices, according to ASI’s review. Of the 34 Easter eggs under review in Bónus, the store sold 28 of them at the lowest price. Extra sold 34 of their 48 eggs at the lowest price, while Heimkaup sold 32 of the 46 eggs reviewed at the lowest price.