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Gap Widens Between The World's Most and Least Expensive Cities

Aug 14, 2008
Moscow is the world's most expensive city when it comes to the cost of living for the third consecutive year, according to the latest Cost of Living Survey from Mercer. Tokyo is in second position climbing two places since last year, whereas London drops one place to rank third.

Oslo climbs six places to 4th place and is followed by Seoul in 5th. Asuncion in Paraguay is the least expensive city in the ranking for the sixth year running.

With New York as the base city scoring 100 points, Moscow scores 142.4 and is close to three times costlier than Asuncion which has an index of 52.5. Contrary to the trend observed last year the gap between the world's most and least expensive cities now seems to be widening.

Mercer's survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is the world's most comprehensive cost of living survey and is used to help multinational companies and governments determine compensation allowances for their expatriate employees.

Yvonne Traber, a principal and research manager at Mercer, commented: "Current market conditions have led to the further weakening of the US dollar which, coupled with the strengthening of the Euro and many other currencies, has caused significant changes in this year's rankings."

She added: "Although the traditionally expensive cities of Western Europe and Asia still feature in the top 20, cities in Eastern Europe, Brazil and India are creeping up the list. Conversely, some locations such as Stockholm and New York now appear less costly by comparison.

"Our research confirms the global trend in price increases for certain foodstuffs and petrol, though the rise is not consistent in all locations. This is partly balanced by decreasing prices for certain commodities such as electronic and electrical goods. We attribute this to cheaper imports from developing countries, especially China, and to advances in technology.

"Keeping on top of the changes in expatriate cost of living is essential so companies can ensure their employees are compensated fairly and at competitive rates when stationed abroad," Traber observed.

"In some cases, cost of living increases may be correlated to countries with a high rate of economic growth. Companies may assign high priority to expansion in these economies but may have to deal with inflationary pressures due to competition for expatriate-level housing and other services, as observed in our surveys," she noted.

For example, Latvia had real GDP growth of 10.2 percent in 2007, well above the global average growth rate of 5.2 percent, and its capital, Riga, jumped to 46th place in the latest Mercer ranking, up from 72nd a year ago. Cities in India all rose in the cost of living ranking, with New Delhi climbing to 55th place from 68th a year ago, as India posted a real GDP growth rate of 9.2 percent in 2007. Bogota jumped to 87th place from 112th, reflecting Colombia's 7 percent real GDP growth.

Other European cities in the global Top 10 include Copenhagen at 7th (117.2) and Geneva in 8th (115.8). Both cities have dropped one place from last year. Zurich remains in 9th place (112.7), whereas Milan climbs one to 10th place with a score of 111.3. Sofia in Bulgaria is again the least expensive European city for expatriates in 97th place (76.9), although the city has climbed 11 places in the overall ranking.

Several European cities have experienced a significant rise in the rankings this year, mainly as a result of local currency strengthening against the US dollar. For example, Prague has jumped from 49th to 29th place (score 96) and Warsaw is up to 35th place (score 95) compared to 67th in 2007. Istanbul has climbed 15 places to rank 23 (score 99.4) reflecting the Turkish lira's significant appreciation against the US dollar as well as general price increases, especially for accommodation.

In addition to London dropping one place, two additional UK cities, Birmingham and Glasgow, have both moved down in the rankings, dropping from 41st to 66th (score 85.4) and 36th to 69th (score 84), respectively.

Tel Aviv is again the most expensive city in the Middle East, positioned 14th (score 105) on the global list, up three places from 2007. Both Dubai and Abu Dhabi have dropped significantly this year, positioned at 52 (score 89.3) and 65 (score 85.7), respectively. This is mainly due to the UAE dirham being pegged to the US dollar. Most African cities in the survey have moved down the ranking with the exception of Lagos in Nigeria, which has jumped seven places to join the Top 30 at position 30 (score 95.9).

The only North American city to feature in this year's top 50 is New York in 22nd place (score 100), dropping seven places in one year. All other US cities have also experienced a significant decline in the rankings. For example, Los Angeles has moved from 42nd to 55th place (score 87.5), Miami from 51st to 75th place (score 82) and Washington, DC, from 85th to 107th place (score 74.6).

In 54th place (score 88.1), jumping 28 places from last year, Toronto is the most expensive city for expatriates in Canada. All other Canadian cities in the survey have experienced similar rises, with Vancouver moving from 89th to 64th (score 85.8), Calgary from 92nd to 66th (score 85.4) and Montreal from 98th to 72nd with a score of 83. This reverses last year's trend which saw Canadian cities decline, and places them back where they have traditionally been rated. The Canadian dollar has appreciated nearly 15 percent against the US dollar, the main reason for these movements.

The two top-ranking cities in South America are Sao Paulo in 25th place (score 97) and Rio de Janeiro in 31st place (score 95.2), jumping 37 and 33 places, respectively. The Brazilian real appreciated nearly 18 percent against the US dollar last year, causing these Brazilian cities to rocket up the list. Another high-riser in this region is Caracas, jumping 40 places from 129th to 89th (score 79.3). High inflation in Venezuela has caused a sharp increase in the price of food and household products.

South America also has some of the lowest ranking cities globally. Asuncion is the least expensive city for the sixth consecutive year (score 52.5), followed by Quito in Ecuador in 142nd (score 54.6), Buenos Aires in 138th (score 62.7) and Montevideo in 136th (score 63.2).

Tokyo is the costliest Asian city, in 2nd place (score 127), two places up since last year. Seoul follows in 5th place (score 117.7) and Hong Kong closely after in 6th with a score of 117.6. Singapore ranks 13th and holds a score of 109.1. Karachi continues to be the least costly city in this region, in 141st place with a score of 54.7.

Whilst the five top-scoring cities in Asia remain relatively stable in the ranking there have been significant changes further down the list. In India, Mumbai moves up four places to reach 48 (score 90.3), whereas New Delhi climbs 13 places to 55 (score 87.5) due to the strengthening of the India rupee against the US dollar. Although India has experienced relatively high inflation, this has increased at similar pace to New York and has therefore had a reduced impact on its cities' rise in the rankings. Manila rises a total of 27 places, ranking 110th with a score of 73.4, mainly as a result of price increases for international-standard accommodation.

In contrast, certain cities in this region have experienced significant falls in the ranking. Some examples are Jakarta falling from 55th to 82nd place (score 80.5) and Bangkok dropping from 95th to 105th place with a score of 75.1. In Vietnam, Hanoi drops 35 places to rank 91 (score 79) and Ho Chi Minh City drops 40 places to rank 100th (score 76.3), mainly because the Vietnamese dong has remained stable against the US dollar and so has pushed these cities down on the list. The low level of inflation observed on goods in these Vietnamese cities compared to in New York has further widened the gap.

Sydney continues to be the most expensive city for expatriates in this region, moving up six places in the overall ranking to reach 15th place (score 104.1). Melbourne follows in 36th place (score 94.2), jumping 28 places and Perth climbs 31 places to reach ranking number 53 (score 88.5).

Both Australian and New Zealand cities are moving up in the rankings due to the appreciation of their local currencies against the US dollar. New Zealand's cities remain the less costly option for expatriates, however, with Auckland in 78th place (score 81) and Wellington in 93 (score 77.6).
About the Author
Karl Hopkins manages various websites including Fly2let.net which is an online resource for UK property investors, concentrating on investment property overseas.

For more information please visit http://www.fly-2let.co.uk
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