The land of ice and fire. And high prices

Dear reader, as you know, this blogger likes to write overly long posts with way too much detail and unnecessary content. As a result, many people do not read through. Therefore, if you do not care about who I am (which is totally understandable) or if you already know my story, then I recommend you scroll straight to the next section, The hamburger discovery. However, if you are a big time waster and a massive procrastinator, then you might as well just keep reading to the end (or just like, go on Twitter or something).

if you do not know, I come from a little insignificant Island in the middle of the North Atlantic, Iceland. My parents grew up in the far-east (mom: Egilsstaðir, dad; Djúpivogur) and both migrated south to the city (yes the only city), Reykjavik, where I grew up. Despite the crappy weather and long dark winter nights, I really had it good there.

In my early 20s I moved abroad and lived first in the incrementally less significant south island of New Zealand after spending four years there I moved to another small island called Britain. While in London I met a German Frau, and today we live in Cologne, Germany.

Now that I live abroad I occasionally suffer from homesickness. The remedy so far has been to come back home as often as I can. My commitment to coming home is so strong that I have indeed set up a direct-debit to the charity Cool Earth in order to try and neutralize the bad I do to the planet by all the flying (and to peace my guilty conscience).

A second constraint to coming home, like for everyone else, is of course money. I am quite lucky on this front as I have a solid job and I am happy to substitute other costly activity with going home, until now. The reason: relative prices have made it prohibitively expensive for me.

esjan_sed_fra_perlunni

Mount Esja tickles my homesickness nerve every time.

The hamburger discovery

I have been away from Germany and in Iceland for about 9 days now and so far I have largely been eating my dad’s salty, yet yummy, lamb and fish dishes (on one occasion they were even served together!). I was aware that the krona (the Icelandic currency) had gained some ground relative to the currency I make a living in (Euro), but when I left I figured around 20% would not hit me too hard.

eur-isk

The krona is now buying more Euros (and I can afford fewer Kronas)

Then, once my dad got tired of cooking for me, I met with my brother and we went to a tasty gourmet burger joint, Fabrikkan. Now everybody who has been to a gourmet burger joint knows that they are generally overpriced. Since I am one of everybody, I orderd the food, ate and paid. Then I looked at the receipt and was I in for a shock. The hamburger (Heminn), fries, dipping sauce and Coke came to 3,185 kr.. What that means is that a whopping €26.51 will be deducted from my German account.

Now I knew this was a pricy burger place, but I am pretty sure nowhere in the world would I have been left feeling so gutted after a burger. Obviously, like all other people, suffering from buyer’s remorse, I go and download loads of data and get cracking in excel trying to answer the question, why did I pay so much?

More (tourist) money more problems (for expats)

The chart above shows the strengthening of the krona (note that higher number means that fewer krona can be purchased for each Euro). The chart below shows the number of foreign visitors passing through the main international airport in Iceland (right axis).* On top of that I have laid the exchange rate chart from before.

tourists-and-exchange-rate

More toursts chasing kronas makes the krona strong

There is no doubt in anyone’s mind that Iceland is in the middle of a massive tourist boom. One side effect from that is that the krona is getting stronger. Locals can debate the costs and benefits of it until the cows come home, give birth, produce milk and the burger place has slaughtered it to make one Heminn. I am not going to get into that debate – I do not have the time and the cows are too slow – but instead I am going to focus on hamburgers. But first, why don’t you have a look at the chart below.

tourists-and-exchange-rate

When imports get more expensive the costs are passed on, but not when they get cheaper.

The chart above shows two variables:

  • In green I have plotted the number of kr. that it costs to purchase one Euro (the axis is one the left); and
  • In red I have plotted the consumer price index in Iceland (the axis for that is on the right).

When looking at the chart what one can see is that; (1) in 2008 it had suddenly become much more expensive to buy Euros; and (2) the inflation has roughly doubled since 1999. What this means is that, had the burger I purchased (Heminn) yesterday been on sale in 1999, it would have left me out of pocked by around 1,539 kr. instead of 3,185 kr.

But what is more interesting about the chart above is in fact neither of the extremes that I described before (inflation and exchange rate). What is interesting is what happens between 2008 and today. Notice in the chart, that following the devaluation of the kr. the cost of living (measured by the CPI) starts creeping up. In 2013, the krona gets stronger (green line starts sliding down), but the cost of living stagnates. And this is one of the reasons why I had a mild heart attack when I did the exchange conversion.

German burgers

Perhaps you are not a burger person and have no idea whether burgers are now so good that Michelin star prices are perhaps in order. However, generally hamburgers have an upper limit around €20. Therefore, globally speaking, it seems that Hemminn is slightly overpriced.

But you don’t have to take my word for it, I did the comparison. A local gourmet burger joint– Die Fette Kuh (The Fat Cow) – in Cologne, where I live serves one of the best burgers I have ever eaten.

The German burger has the same amount of beef and includes almost all the same stuff as the Icelandic burger: bacon, cheese, BBQ sauce, you get the picture. You can also add to it fires (which you get sauce with) and of course you can get the Hamburg hipster cola—Fritz Kola. This combination including a 10% non-mandatory tip comes to a sizable 15.40 €. That is more than 10 € less than the Icelandic burger.

I do not have historical prices from neither the German nor the Icelandic burger place, but if we allow us to assume that both should, in theory, roughly follow consumer prices in their respective counties we get an interesting picture. The chart below shows how prices for the two different burgers would have developed since 1999 if they had existed and had followed general retail prices, in Euros (The Icelandic burger in green and the German burger in blue).

tourists-and-exchange-rate

Theoretical burger prices comparison shows how problematic it can be for expats to come home.

Eiki—go back to Germany!

Like I said earlier, I do not have real prices for the two burger places, and in fact neither of the burger places where in existence in the 20th century. But what the relative prices show is the pain that that the toxic mix of strengthening krona and past inflation (with no deflation) imposes on me every time I come back home.

I however am the lucky one. I don’t have to come home; I choose to do so despite the high cost of doing so. The real sufferer from this tendency of prices to surge when the krona is weak and then stagnate when the krona strengthens are my friends and family who have to pay the higher price all the time for burgers and everything else.* Except perhaps when they come visit me in Germany and we go to Die Fette Kuh.

Many thanks for reading, I hope you enjoyed it.

Eiki

Footnotes:

*There is no data from before 1999 on the statistics office site available. Also the figure for “to date” includes an adjustment for missing data (same number of tourists arriving in December as November is assumed).

**I did not look at wage increases which could mitigate the effect for the locals somewhat, but given the similar GDP per capita levels in the two countries my suspicion is that this would not make a big difference to locals.

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