Iceland’s in first place again, with Switzerland in second. According to Bloomberg, citing a study by Viska, the white-collar workers’ union, economist Vilhjalmur Hilmarsson, the last time Eurostat recorded a similar situation was in 2018 (for comparison: in 2024, the gap in Switzerland’s favor was over 7 percentage points). The main reason for inflation in the island country has been the post-pandemic surge in tourism. The surge in travelers has led to a significant rise in wages in the service sector, as well as a hot real estate market, where short-term rentals via Airbnb have pushed up the price of housing for local residents. The National Tourism Board says that high prices are already turning away foreign visitors. Experts say that relying too much on industries that require a lot of labor and not enough production diversification will keep pushing up inflation in Iceland’s economy.
According to estimates by a local trade union, Iceland has once again become the most expensive country in the world, overtaking Switzerland for the first time in many years, according to Bloomberg.
Viska trade union economist Vilhjalmur Hilmarsson said that the price level in Iceland is now three percentage points higher than Switzerland’s. He used data from Eurostat and the Icelandic central bank to make this determination.
According to Eurostat, Iceland’s prices were higher than Switzerland’s last in 2018.
The article pointed out that this situation shows the challenges of a small Atlantic economy, which has always had its ups and downs.
It explains that the post-pandemic surge in tourism—the main thing driving its growth—has led to economic recovery and rising prices, which the central bank is trying to curb.
“Tourism is one of the main drivers of inflation in the services sector. The tourism industry has been putting pressure on prices, which has led to wage growth. Another important thing to think about is the housing sector, which is directly affected by tourism. Tourists, for example, compete with locals for housing through platforms like Airbnb,” Hilmarsson pointed out.
According to Eurostat data from 2024 (the most recent figures available to the public), the price level in Switzerland, adjusted for purchasing power, is more than 7 percentage points higher than that of Iceland.
The National Tourism Board recently did a survey, and it looks like rising prices are starting to put some of those tourists off.
“In the long term, Iceland isn’t developing its manufacturing sectors. We’re too dependent on labor-intensive industries, which will always put up pressure on prices. We need to develop more sectors,” Hilmarsson believes.