Firstly, labour itself is expensive with a lot of mandatory overhead. Secondly, farming in Iceland is tightly regulated with importation of many agricultural products forbidden and price controls on local products. The equipment needed to run a farm has to be imported, making Icelandic farms costly. Other factors, such as a growing tourism industry that circulates around the city centre, has made rent prices for locals out of proportion. Here are some statistics comparing some expenses in Reykjavik with notoriously expensive European capitals such as London and Paris, as well as Tokyo.
Eating out in a cheap restaurant in Reykjavik costs £14 (2,000 ISK). That same meal in London would cost you £15, £7 in Tokyo, and £12 in Paris. The difference is not so much, except for when you try a three-course meal at a mid-range restaurant for two persons: in Reykjavik, £85 (12,000 ISK); in London, £52; in Tokyo, £34; in Paris, £49. Having a cappuccino in a cafe in Reykjavik is more expensive than all three cities, but barely: for a Reykjavik cappuccino you pay £3.81 (536 ISK). In London you pay £2.71. In Tokyo you pay £2.60, and in Paris you pay £3.
While Iceland is a remote island in the North Atlantic, many things have to be imported, which can obviously be expensive. A litre of milk in London will cost you £0.91 (128 ISK), and only slightly more in the other cities. One kilogram of rice in London will cost you £1.56, in Reykjavik it’s £2.23 (313 ISK), in Tokyo it’s £3.72, and in Paris it’s £1.88. A kilogram of local cheese in London will cost you the least of all cities at £5.68 (800 ISK), while it’s slightly more in Tokyo at £11. In Reykjavik it’s £12.29, and in Paris, with its notorious cheese lovers, the price is at £16.63.
In Iceland, there are no trains (yet), so public transportation consists of buses and taxis. For a monthly bus pass in Reykjavik you will pay £84 (11,875 ISK), whereas in London you will pay £132, much more expensive than both Tokyo and Paris, which costs about £63. The price for an initial taxi ride is similar in all cities at around £4 (600 ISK). To buy a Volkswagen Golf costs the most in Reykjavik at £24,144 (3,400,000 ISK), whereas the same car would cost you £20,000 in London, £17,000 in Tokyo, and £18,600 in Paris.
This is the one area in which Iceland really cuts the consumer price index some slack because of the inexpensive geothermal heating that circulates the city’s infrastructure. In Reykjavik, you can pay basic utilities in an 85 sq. meter apartment for £90 (12,700 ISK), whereas in London you will pay £138, while it’s at £144 in Tokyo, and £125 in Paris. The cost of internet, however, is more expensive in Reykjavik at £48 (6,715 ISK) per month compared to London, Tokyo, and Paris, which all average about £28.
To rent one bedroom in the city center of London costs £1,608 per month, while in Reykjavik that same bedroom costs £1,341 (189,000 ISK) per month, then £982 in Paris, and £750 in Tokyo. A three-bedroom apartment outside the city center of London costs £2,000 while in Reykjavik you would pay £1,715 (241,515 ISK), a little less than in Paris at £1,480, and much more than in Tokyo at £981.