Inflation Below 6% for First Time in Two and a Half Years

inflation rate in iceland

Over the past twelve months, the CPI (Consumer Price Index) has risen by 5.8%, excluding housing costs. This is the first time in some two and a half years that inflation has rested below 6%.

Inflation was measured at 6.2% last month. The highest inflation rate in recent years was recorded in February of 2023, which saw rates of 10.2%.

Key factors in the recent change include:

  • The consumer price index excluding housing rose by 0.41% from May 2024 to 510.6 points. Owner-occupied housing costs increased by 0.8%.
  • International airfare rose by 8.0%, and hotel and restaurant prices increased by 2.1%, largely due to a 17% rise in accommodation costs.

In their latest report, Statistics Iceland also announced a new method for calculating rent using the rental equivalence method.



Supply of Affordable Housing Continues Decline in Capital Region

architecture Kirkjusandur apartments

The June report from the Housing and Construction Authority shows several trends, the most important of which is likely the continuing decline of affordable housing in the capital region.

Key points from the report

  • Total Property Valuation: 15.3 trillion ISK, over four times Iceland’s GDP.
  • Capital Area: Property valuations increase by 2.1%.
  • Rural Areas: Average increase of 6.6%.
  • Municipal Variations:
    • Highest increase in Flóahreppur (20.6%).
    • Significant increases in Tálknafjarðarhreppur (20%) and Skeiða- og Gnúpverjahreppur (19.8%).
    • Decrease in Kjósarhreppur (-1.5%).
  • Commercial Properties:
    • 5.4% increase in the capital area.
    • 7.4% increase in rural areas.
  • Summer Houses: Increase by 15.6% nationwide.
  • Average Property Valuation:
    • New average: 72.3 million ISK (previously 69.9 million ISK).
    • Capital area: Increase from 83.3 million ISK to 85 million ISK.
      • Multi-family apartments: Increase to 68.6 million ISK.
      • Single-family homes: Increase to 130.5 million ISK.
    • Neighboring municipalities: Increase from 58.4 million ISK to 61.2 million ISK.
    • Rural areas: Increase from 41.4 million ISK to 45 million ISK.

Supply of apartments changes little as demand increases

The apartment market has seen increased activity with more purchase agreements in recent months. Prices have risen by 4.9% in the first four months of the year, which translates to a 12.2% annual increase.

At the end of May, there were about 3,350 apartments for sale across the country, with around 2,000 in the capital area. Roughly half of the apartments for sale in the capital area are in Reykjavík, with more new listings in Reykjavík and Hafnarfjörður. In Kópavogur and Garðabær, the supply of new apartments has decreased, with around 70 new apartments for sale in each area.

More sales above asking price

The percentage of apartments sold above asking price has been increasing monthly in both the capital area and its outskirts. In April, 19% of all apartments were sold above asking price, with 21.3% in the capital area and 18.1% in its outskirts. This trend reflects rising apartment prices, similar to previous periods of market price increases in 2016 and during the onset of the COVID-19 pandemic in 2020.

In rural areas, the proportion of apartments sold above asking price is more variable, decreasing to 8.3% in April from 14.3% in March. This decline is partly due to fewer multi-unit apartment sales compared to single-family homes, which typically see higher proportions of sales above asking price in rural settings.

Almost no apartments in capital area under 60 million ISK

The report also notes that the supply of apartments priced under 60 million ISK [$430,000; €402,000] has decreased since last year, now comprising less than 15% of the total market supply. This shortage suggests difficulties for first-time buyers entering the market, which is further highlighted by a decline in young buyers in the first quarter of this year.


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%.


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.




Another Collective Bargaining Agreement Signed

A new collective bargaining agreement was signed yesterday, Vísir reports, between the Confederation of Icelandic Enterprise (SA) and the labour unions The Electrical Industry Association of Iceland, the food and restaurant union Matvís, the Icelandic Union of Marine Engineers and Metal Technicians, and the printers’ union Grafía.

Stability and gratitude

The contract worked out between the parties is to last four years, and outlines terms similar to the agreement recently approved by the labour union Efling and others last week.

SA director Sigríður Margrét Oddsdóttir told reporters that the aim of the agreement was for “economic stability”, adding, “We are just incredibly proud and grateful after the day today.”

Ball in their court

Kristján Þórður Snæbjarnarson, the director of the The Electrical Industry Association of Iceland, was more guarded in his response to the contract.

While saying that it was indeed good news that their workers had gotten new wage agreements, a pay rise is not the only thing that affects economic stability and keeping up with the cost of living.

“It is also extremely important that interest rates and inflation reduce,” he told reporters, adding, “The ball is in the court of the Central Bank, companies in this country, and state and local authorities to hold back on tariffs and participate in this project with us. That, of course, is what matters. We send the ball their way.”

More negotiations to come

The next major round of labour negotiations is to take place between SA and VR, which is the labour union of employees in commerce, services and offices.

Talks between SA and VR have been contentious, and were recently broken off, but talks between the two parties are set to resume tomorrow.

Central Bank Governor to Stay On

Ásgeir Jónsson, Governor of the Central Bank of Iceland

Ásgeir Jónsson, the Governor of the Central Bank of Iceland, will stay on until the year 2029, RÚV reports.

The Governor’s term was set to end August 20 this year. According to law, Prime Minister Katrín Jakobsdóttir would have had to inform Ásgeir with a six months notice if the position were to be opened for other candidates. This did not take place and Ásgeir’s tenure was therefore automatically extended for five years.

Tumultuous term in office

Ásgeir was appointed in 2019 and has faced challenges during his term. The Covid-19 pandemic affected the economy greatly and the Central Bank’s response was to drive down interest rates to fuel economic activity. At their lowest, they were 0.75%, the lowest rate in Iceland’s history.

After the pandemic, inflation has been high and persistent. Since mid-2021, interest rates have steadily gone up and now stand at 9.25%.

In Focus: The Króna and the Euro

icelandic króna isk

The Icelandic króna was introduced as currency when Iceland gained its sovereignty from Denmark in 1918, with the first coins issued in 1922. At the time, one Icelandic króna was equal to one Danish krone. Today, the Icelandic króna has been devalued to such a degree that you’d need 2,000 of the original króna for […]

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Deep North Episode 57: Balancing the Scales

escaped farmed fish iceland

On Saturday, October 7, a tractor trundled through the streets of downtown Reykjavík with hundreds of protestors in tow. The procession was headed to Austurvöllur Square in front of Iceland’s Parliament for a demonstration.

Several organisations – including Landvernd (the Icelandic Environment Association) and the Icelandic Wildlife Fund – had organised the event to protest salmon aquaculture in open-net sea pens, an industry that grew more than tenfold in Iceland between 2014 and 2021. During this period, annual production ballooned from nearly 4,000 tonnes of farmed salmon to approximately 45,000 tonnes.

The reason protestors were demonstrating was because the growth of the industry had coincided with what some would call predictable problems. Aside from the potentially negative environmental impacts that salmon farming in open-net pens poses – including pollution from fish waste, uneaten feed, and chemicals or medicines used to treat diseases – Iceland had recently witnessed firsthand two of the industry’s primary risks: the escape of genetically-distinct farmed salmon of Norwegian origin from open-net pens (threatening introgression with wild populations), and the proliferation of diseases and parasites, most notably sea lice.

Read the full story here.

Deep North Episode 44: Working it Out

work week iceland

A few years ago, Iceland instituted a four-day work week. It’s gone off without a hitch and everyone’s been happier since. At least that’s the story that has spread through foreign media outlets.

The truth is much more complex. Firstly, it’s not a four-day work week, but a 4.5-day work week. Secondly, it technically only applies to public service workers. Thirdly, although preliminary data shows the shortened work week has had many positive impacts, there are still many kinks to work out in its implementation. And when we examine those kinks, we begin to realise that long working hours are only one of the challenges faced by Iceland’s labour market – and that the shortened work week is only one solution of many that will be needed in the coming years.

Read the story here.

Further Aquaculture Permits Put on Hold

arnarlax fish farm iceland

RÚV reports that further aquaculture permits have been suspended by the government, citing the recent growth of the industry and recent concerns about local fish stocks.

Read more: Extensive Hybridization Between Farmed and Wild Fish Stocks

Fish farming has grown significantly in recent years. In 2014, some 8,300 tonnes of farmed fish were exported by Iceland. According to the latest data from 2022, that number has now risen to more than 51,000 tonnes.

Profits have likewise risen rapidly, the total export in 2014 accounting for ISK 1.4 billion [$10.3 million, €9.6 million]. By 2022, that number had risen to ISK 40.5 billion [$298 million, €279 million]. Top importers have been the US, Holland, Germany, Denmark, France, and the UK.

Read more: Damning Report on Iceland’s Fish Farming Industry

The government decision came in the wake of a recent report on the industry, which found a patchwork of regulation that left the industry largely unsupervised.

One major concern which has made recent headlines is the hybridization of farmed fish following their escape from pens. Conservationists are concerned that the farmed fish introduce parasites into native fish stocks, in addition to competing with them for food. At least 16 cases of escapes have been documented by MAST, the Icelandic Food and Veterinary Authority. Most recently, some 3,500 fish went missing in Patreksfjörður.

The majority of fish farming is practised in the Westfjords, where it accounts for some 5.5% of local jobs. But the industry has also grown significantly in the Eastfjords as well, where it has become a much-debated issue.

Recently, residents of Seyðisfjörður expressed their opposition to proposed increases of the industry in the area, stating that it would narrow the available shipping lanes. In addition to a ferry, Seyðisfjörður is also visited by a number of cruise ships each year, which have become an important part of the local economy.