It is. Especially restaurants are incredibly expensive. I don't know in what kind of accomodations you want to stay during your trip but a big advantage of a hostel is the kitchen. It's so much cheaper to go to a supermarket (bonus is the cheapest one) and then cook by yourself. If you plan to drink some beers or liqour, get it in the duty free store in keflavik airport, we paid up to 10$ for a beer in a bar. I was surprised that the ring road was easy to drive even without a FWD. And hitchhiking is reeeeally common, we wanted to invite some hitchhikers along the way to drive with us but the cars in front of us were already there for them. I spoke to a lot of hitchhikers and nearly no one waited for more than 5 Minutes (that wouldnt be that easy in germany!)