Cost of Living: The World in 2011

The cost of living for an expatriate is affected by both the availability and prices, of goods and services representative of an expatriate lifestyle, local inflation, and the exchange rate between the home and host country. As a result the cost of living has a significant impact on an expatriate’s salary package, explains cost of living experts, Xpatulator.com.  

According to Xpatulator.com's latest research Tokyo is, overall, the most expensive place in the world to live. The cost of groceries, healthcare, and household accommodation in Tokyo is the highest globally, Caracas is, overall, the second most expensive place to live, and is the most expensive place in the Americas. Hong Kong is, overall, the third most expensive place to live, mainly due to the high cost of household accommodation. Geneva is fourth most expensive followed by Japan's second most expensive city, Osaka. (See January 2011 Cost of Living Top 20 Ranking right).

Other notable results include:

  • Luanda is Africa's most expensive place to live followed by Libreville and Lagos.
  • Sao Paulo is the Americas second most expensive place to live followed by Rio de Janeiro.
  • Zurich is Europe's second most expensive place to live followed by Oslo.
  • Abu Dhabi is the Middle East's most expensive place to live followed by Doha and Manama.

2011 Forecasts

The forecast for 2011 is that we are likely to see food shortages, largely as a result of poor harvests in Russia, Canada and Ukraine, a heat wave in Argentina and floods in Australia, Sri Lanka, Brazil and South Africa, all of which will inevitably lead to higher prices later this year. According to the UN’s Food and Agriculture Organisation (FAO), food prices in December 2010 had already surpassed their previous high in 2008. Given the impact of food on most country's CPI (inflation) baskets, we can also expect higher inflation in 2011.

This is not all bad news. High food prices are good for farmers and are an added incentive for farmers to produce what we need. Although 2011 will see price increases, 2012 should see prices come down because this year's higher prices will incentivise farmers to plant more this year.

Higher Oil and a Weaker US Dollar

The Organization of Petroleum Exporting Countries (OPEC) has said recently that demand for oil in 2011 will be stronger than it previously forecast owing to the recovery in the global economy. Demand has already pushed oil prices to nearly $100 a barrel in early January 2011. Given the impact of a high oil price on energy, manufacturing and transport costs, we are likely to see production costs increasing this year.

Consensus amongst economists appears to indicate that the US Dollar will struggle to make gains in 2011. Research shows that it may rise against the euro, for the first six months of 2011. However when it comes to other world currencies, the U.S. Dollar will continue to weaken.

Cost of living Indexes

Cost of living data we collected between October and December 2010 has been used to calculate global cost of living indexes relative to New York (i.e. the index for New York is 100). The cost of living indexes represent the cost of living as at 1 January 2011. The indexes have been compiled and reported on a quarterly basis since 2007 for use in calculating international expatriate salary purchasing power and cost of living allowances.

The prices and quantities of goods and services covering 13 basket groups, representing different categories of costs experienced by expatriates were collected for 300 international locations. The results are reported as indexes based on an algorithm of the raw data together with available indexed data from global agencies, such as the World Bank and the United Nations, and local agencies within each country.

The most expensive places to buy each basket are:

  • Alcohol & Tobacco - Caracas followed by Bangkok and South Tarawa
  • Clothing - Manama followed by Sao Paulo and Rio de Janeiro
  • Communication - Mbabane followed by South Tarawa and Noumea
  • Education - Sao Paulo followed by Rio de Janeiro and Moscow
  • Furniture & Appliances - Caracas followed by Moscow and Sao Tome
  • Groceries - Tokyo followed by Caracas and Copenhagen
  • Healthcare - Tokyo followed by Caracas and South Tarawa
  • Household Accommodation - Tokyo followed by Hong Kong and Osaka
  • Miscellaneous - Moscow followed by Asmara and St. Petersburg
  • Personal Care - South Tarawa followed by Bishkek and Tehran
  • Recreation & Culture - Caracas followed by Port Vila and Port Moresby
  • Restaurants Meals Out and Hotels - Caracas followed by Abu Dhabi and Athens
  • Transport - Oslo followed by Geneva and Zurich

If price were the most important factor and you wanted to buy each basket in the cheapest places in the world you would buy:

  • Alcohol & Tobacco in Kuwait City followed by Tehran and Vilnius
  • Clothing in Sanaa followed by Dhaka and Kampala
  • Communication in San Jose followed by Conakry and Tehran
  • Education in Paramaribo followed by Macao and Suva
  • Furniture & Appliances in Sanaa followed by Malabo and Male
  • Groceries in Sanaa followed by Bishkek and Buenos Aires
  • Healthcare in Sanaa followed by Tunis and Tripoli
  • Household Accommodation in Asmara followed by Nuku'Alofa and Thimphu
  • Miscellaneous items/services in Dushanbe followed by Colombo and Belmopan
  • Personal Care in Havana followed by Podgorica and Suva
  • Recreation & Culture in Malabo followed by Havana and Karachi
  • Restaurants Meals Out and Hotels in Nuku'Alofa followed by Addis Ababa and Karachi
  • Transport in Phnom Penh followed by Bujumbura and Jeddah

December 2011?

What will the cost of living rankings look like at the end of 2011? We expect higher cost of living indexes in places exposed to higher inflation as a result of higher food and oil prices. Those places that use the US Dollar, or who have currencies that are fixed against the weakening US Dollar, will find imports becomming more expensive. Overall we expect Europe, South America and Asia-Pacific in particular to become relatively more expensive places to live, while the United States should become relatively less expensive, in global terms, particularly with respect to domestically produced goods and services.

The complete cost of living ranking is available here.

About the author: Steven Coleman is Chief Instigator at Xpatulator, a website that provides cost of living index information and calculates what you need to earn in a different location to compensate for cost of living, hardship, and exchange rate differences.

Notes:
Figures used in this report were taken from Xpatulator.com’s cost of living database as at 1 January 2011. The above ranks are based on the overall cost of living index using all 13 basket groups with New York as the base city (Cost of living index = 100).

About Xpatulator.com’s Cost of Living Data

Xpatulator.com’s cost of living data is based on prices for the same quantity and quality of goods and services, representative of expatriate lifestyle, in each city. The data is collected and updated on a quarterly basis. The cost of living data is used by Xpatulator.com clients to calculate salary purchasing power parity, cost of living allowances, and customized (i.e. clients can select their own base city) cost of living indexes for expatriate assignments online, using Xpatulator.com’s 3 premium content calculators.

The 13 basket groups do not count equally and are weighted according to expatriate expenditure norms as follows (weighting percentage is in brackets):

  1. Alcohol & Tobacco (2%): Alcoholic beverages and tobacco products.  
  2. Clothing (2.5%): Clothing and footwear products.
  3. Communication (2%): Telephone, Internet, Mobile Contract and Calls.
  4. Education (5%): Creche Fees, School Fees, College Fees, and Tertiary Study Fees.
  5. Furniture & Appliances (5%): Furniture, household equipment and appliances.
  6. Groceries (16.5%): Food, non-alcoholic beverages and cleaning materials.
  7. Healthcare (5%): Doctor Consultation rates, Private Ward Rate, Prescription Medicine, and Private Medical Insurance Contributions.
  8. Household (30%): Housing rental, utilities, local rates and residential taxes.
  9. Miscellaneous (3%): Stationary, Linen and general goods and services.
  10. Personal Care (3%): Personal Care products and services.
  11. Recreation & Culture (6%): Books, Camera Film, Cinema Ticket, DVD and CD’s, Sports goods, Theatre Tickets.
  12. Restaurants Meals Out and Hotels (2%): Dinner at Restaurant (non fast food), Hotel Rates, Take Away, Drinks & Snacks (fast Food).
  13. Transport (18%): Public Transport, Vehicle Costs, Vehicle Fuel, Vehicle Insurance and Vehicle Maintenance.