There’s a common belief that Iceland is expensive to visit. But ultimately, that depends on where you’re coming from and what you’re doing while travelling.
Why is Iceland so expensive?
There’s no single reason why Iceland is expensive. Instead, it’s a culmination of multiple reasons that together lead to higher prices for goods and services than you might expect.
Iceland is a rather remote location, something you can probably appreciate if you’re been trying to stay comfortable on a long-haul flight. It’s around 280km away from its nearest neighbour, Greenland.
Because it’s an island goods need to be imported by air or by sea. As such, it’s expensive to ship food and other products to the country. This immediately adds a premium to the prices you’ll pay.
Compounding this is the fact that the population of Iceland is quite small (~360,000 as of 2023) meaning importers don’t benefit from economies of scale.
Taxes such as the VAT and other tariffs also increase prices. It’s worth noting that a reduced VAT of 11% does apply to many tourist-related products and services such as hotel rentals and tour transportation.
Compared to the United States and other countries Iceland also has high interest rates. As of March 2024, interest rates were sitting at 9.25%. This compares to 5.5% in the United States, and 5.25% in the United Kingdom.
Higher interest rates typically mean higher costs for businesses - which in turn often get passed through in higher prices for goods and services.
One positive is that in Iceland you don’t aren’t expected to tip for services. Instead, you can choose to tip if you feel that the quality of service deserves it. Unlike in the United States where tipping is expected.
Lastly, your perception of whether Iceland is expensive can come down to your perspective. Depending on what country you’re coming from, your background and financial situation Iceland’s prices may seem not too dissimilar from home.
How expensive is food in Iceland?
For most people, food in Iceland is priced slightly higher than the United States once you take into consideration taxes and tipping in the USA.
For a basic meal you might find you’re paying a slight premium over a meal back home. But given you don’t need to tip in general Ireland pricing will be closer than you might otherwise expect. Unless you’re dining in a 5-star Michelin restaurant of course.
You can probably get away with having a budget of $110-$150USD per day for breakfast, lunch and dinner.
Keep in mind that Iceland is a harsh environment, so they rely heavily on importing food. Given this has to arrive by boat or plane, prices will naturally be somewhat higher.