Inflation in Iceland Declining

Finances in Iceland

In news that will likely come as a relief to locals and visitors alike, RÚV reports that inflation has been declining in Iceland.

Still higher than the EEA

That said, inflation in Iceland is still comparatively high, at least within the context of the rest of the European Economic Area (EEA). Whereas inflation in the EEA last month was at 2.6%, in Iceland it was 5.1%

Iceland is not, however, the country with the highest inflation rate in Europe; that distinction goes to Turkey, with a January 2024 inflation rate of 64.9%.

Inflation decreasing

While 5.1% may not be ideal, inflation in Iceland has been trending downward. In February of last year, it was at 8.8%, and in October 2022, 11.5%.

All this being the case, the consumer price index is also trending downwards, boding especially well for Icelandic residents in the wake of recent collective bargaining negotiations.

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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Changes to Payment Processing Over the Weekend Led to Overcharges

digital payment iceland online banking

Updates to digital payment systems caused confusion over the weekend, when some consumers in Iceland were charged excessive amounts for some everyday purchases.

On Saturday, April 15, Íslandsbanki sent out a message to its customers in advance of the change, stating: “This weekend, there will be a global standard change implemented by payment processors that involves the removal of decimal points from Icelandic Króna currency. As a result, Mastercard will be removing decimal points from its transactions starting tomorrow, Saturday, April 15th at 7:05 PM.  Customers of our bank may be alerted to incorrect amounts when making purchases in Icelandic currency during that time, if payment processors do not update their settlements in a timely manner.”

Íslandsbanki warned customer to refrain from making certain purchases if they were uncertain of the charge. However, some Icelanders were unpleasantly surprised on their banking statements, as Morgunblaðið notes.

Among some of the charges include one Icelander who reportedly was charged 176,000 ISK [$1,290, €1,175] at Bæjarins Beztu, a popular hotdog stand, and an Icelander who was charged 642,600 ISK [$4,715, €4,293] for a grocery trip.

Regarding such charges, Íslandsbank stated: “If customers continue with their purchase and are charged the wrong amount, they should wait until the transaction has been settled and then contact the seller for a correction, or submit a refund request to Íslandsbanki.”

Online payment service Paypal likewise suspended ISK transactions between April 14 and 18.

Those experiencing problems with their banking are advised to contact their bank directly.

Can I use Euros in Iceland?

currency iceland

The short answer: no, you cannot use Euros in Iceland.

Iceland, to the surprise of some, is not in the European Union, nor does it use the Euro. In fact, Iceland is the second-smallest nation (after the Seychelles) to maintain its own currency and monetary policy, which is called the Icelandic króna, or ISK. It is, however, a part of the Schengen zone, which allows freedom of movement for citizens of partner nations.

Some of Iceland’s Nordic peers, do, however, have different arrangements. For instance, Denmark is part of the EU, but also retains its own currency, the Danish krone, which is pegged in value to the Euro. All of the Scandinavian nations have their own currencies, which are all variations on the local word for “crown,” just like there is a US, Canadian, and Australian dollar. These Scandinavian currencies are descended from the Scandinavian Monetary Union, a monetary union between Denmark, Norway, and Sweden in the 19th century. It stemmed out of a growing desire among some to unite these similar nations in a “pan-Scandinavian” movement. Little else came of this, but the monetary union was generally considered successful and helped to tie the region’s economies together under a standardized system.

But these days, the Icelandic króna is the only official currency, so plan accordingly.

If you are planning a trip to Iceland, know that digital transactions are largely the rule in most establishments. You certainly can pay in cash, but most places of business prefer electronic payment for convenience. Still, a well-prepared traveller should exchange some cash to have on hand, just in case. It is possible to change cash at the airport or at a bank in town. You can also use an ATM (in Icelandic: Hraðbanki) to withdraw local currency, but these generally come with fees.

However, some large stores, attractions, and restaurants that deal largely with tourists may accept Euros, USD, or other major currencies. Also, because of the high volume of connecting flights through Keflavík International Airport, all merchants at the airport accept Euro, USD, and some other major currencies. It is worth noting that this is not an official policy: it is a service that some businesses provide their customers with for convenience. That means that while it may be an option, do not make your plans around being able to pay in Euro, USD, or other currencies.