Rising grocery and oil prices are impacting the low income earners most severely, but are also likely to impact expatriate purchasing power.
Lower income earners spend a larger percentage of their income on groceries and transport. The world’s poorest consumers spend a large proportion of their income, around 50 to 70 percent, on food and have limited capacity to adjust quickly to rapid price increases. In places like Egypt, Tunisia and Libya this has contributed to political unrest. At the expatriate level the impact will also be felt as up to 16% of their income is spent on groceries and 18% on transport.
International maize and wheat prices have nearly doubled from June 2010 and March 2011, and dairy product prices have also risen. High food inflation is affecting many developing countries, including those that are home to large numbers of poor people. For example, food inflation was 10 percent in China and 18 percent in India year on year between December 2009 and 2010, mostly driven by higher prices of meat, fish, eggs, dairy, vegetables, and fruits.
According to United Nations' Food and Agricultural Organization (FAO), global average prices of foodstuffs, including rice, wheat, meat and maize had increased by 25% in the international basket in 2010, compared with the December 2009 levels.
The International Monetary Fund (IMF)'s statistics, on the other hand, show commodity prices rising by an average of 33% over the past one year, with metal prices rising by an average of 40%, energy prices 30%, and crude oil prices 31%. Global food prices, according to the IMF, have risen 61% from December 2008.
Commodities such as coffee, sugar and cocoa prices are predicted to rise as much as 10-fold by 2014 because of shortages according to Aaron Smith, managing director of Superfund USA Inc.
The earthquake/tsunami disaster and nuclear crisis in Japan, which has disrupted the supply chain and increased Japanese demand for raw materials and untainted food, is likely to put further strain on the inflation problem facing the world.
Oil prices have surged 15 percent this year as output from Libya slumped. The armed conflict has forced companies to suspend operations and evacuate staff. Oil has been trading at over $100 a barrel in recent times. Deutsche Bank has raised its oil price forecast for 2011 by 16 percent to $117.50 a barrel, citing declining spare capacity in Saudi Arabia and unrest in the Middle East.
Rising food and energy prices lead to rising inflation. Chinese inflation was 4.9 percent in the year to February 2011, and looks likely to climb above 5% in coming months. Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the fastest in more than two years. South Korea's inflation rate hit a 27-month high of 4.5% in February, driven by rising food and fuel costs.
It is likely that the spike in inflation will increase employee expectations for salary increases that preserve their purchasing power and for companies to increase their prices, resulting in an inflationary cycle. This will however be offset to a large degree in economies with high unemployment rates, and where economies are running below capacity, such as the USA and the UK.
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.
Based on data collected before the earthquake and tsunami, Japan has 3 cities in the top 8 most expensive in the world. None of the 3 cities (Tokyo, Yokohama, and Osaka) were directly impacted by the tsunami, but it is likely the cost of living in Japan will rise further depending on the strength of the Japanese Yen going forward. Tokyo remains the costliest city in the world, for expatriates, to live in as at April 2011, out of 300 global locations, surveyed during the period 1 January to 31 March 2011.
Caracas is the second most expensive city to live in. Caracas is most expensive place in the world for furniture and appliances, alcohol & tobacco, hotels restaurants and meals out. Caracas is the second most expensive place for groceries, recreation and culture, and healthcare.
Hong Kong is the third most expensive city in the world for expatriates to live in. The high overall cost of living rank for Hong Kong is primarily a result of two expensive basket groups. Hong Kong is the third most expensive city in the world for healthcare, and is the most expensive city in the world for household accommodation, which typically comprises 30% of an expatriate’s expenses. Hong Kong is a good example of why many international organizations compensate separately for healthcare as well as household related costs such as housing rental, water, electricity, household gas, household fuels, local rates and residential taxes. Items that are provided by the employer should be excluded from a cost of living index calculation. The cost of living index for Hong Kong excluding healthcare and household related costs is substantially lower than it’s overall cost of living index of 136.06. Hong Kong is relatively cheap for recreation & culture (ranked 237 in the world), education (ranked 255 in the world), as well as furniture & appliances (ranked 276 in the world).
Geneva, the fourth most expensive city, and Zurich, ranked fifth, are particularly expensive for transport, recreation & culture, hotels restaurants and meals out, healthcare as well as groceries.
Asia-Pacific has 4 of the 10 most expensive cities in the world. Tokyo is first and Hong Kong the third most expensive location in the world (and most expensive in greater China), whilst Osaka is the third most expensive city in Asia-Pacific (ranked 6 in the world), followed by Nagoya (ranked 8 in the world). Australia now has 3 of the top 10 most expensive cities in Asia-Pacific, Sydney has moved up to fifth, followed by Canberra seventh and Melbourne tenth.
Cities in mainland China remain relatively cheap, mainly due to the pegging of the Chinese Yuan to the US Dollar which has kept costs down. Within mainland China, Shanghai (ranked 18 in the world), and Beijing (ranked 116 in the world) are the most expensive locations. The cheapest city surveyed in China is Tianjin (ranked 278) with a cost of living index of just 63.59. The cheapest city in Asia-Pacific is Phnom Penh in Cambodia (ranked 298) with a cost of living index of 55.4.
Most expensive cities in Asia-Pacific (Global rank in brackets)
1. Japan, Tokyo (1)
2. China, Hong Kong (3)
3. Japan, Osaka (6)
4. Japan, Nagoya (8)
5. Australia, Sydney (12)
6. Japan, Yokohama (13)
7. Australia, Canberra (15)
8. China, Shanghai (18)
9. Vanuatu, Port Vila (21)
10. Australia, Melbourne (22)
South Asia is the least expensive region in the world for expatriates to live in. The most expensive city surveyed is Mumbai (ranked 123 in the world), followed by New Delhi (ranked 157), and Chennai (ranked 160). The cheapest city in South Asia, and in the world, is Thimphu in Bhutan (ranked 300).
Most expensive cities in South Asia (Global rank in brackets)
1. India, Mumbai (123)
2. India, New Delhi (157)
3. India, Chennai (160)
4. India, Calcutta (161)
5. Sri Lanka, Colombo (168)
6. India, Hyderabad (169)
7. Maldives, Male (181)
8. India, Bangalore (183)
9. Afghanistan, Kabul (221)
10. Nepal, Kathmandu 275)
Europe’s most expensive cities are mostly those that are not on the Euro. The most expensive city in Europe is Geneva (ranked 4 in the world), followed by Zurich (ranked 5), making Switzerland the most expensive country in Europe. Zurich is followed by Vaduz in Liechtenstein (ranked 9). The cheapest city in Europe is Tirana in Albania (ranked 284 in the world) with a cost of living index of 62.4.
Most expensive cities in Europe (Global rank in brackets)
1. Switzerland, Geneva (4)
2. Switzerland, Zurich (5)
3. Liechtenstein, Vaduz (9)
4. Norway, Oslo (10)
5. Denmark, Copenhagen (16)
6. Russia, Moscow (17)
7. United Kingdom, London (20)
8. Monaco, Monaco (26)
9. France, Paris (27)
10.Jersey, Saint Helier (29)
The Middle East's most expensive city is Abu Dhabi (ranked 45 in the world), followed by Doha (ranked 59), and Israel (ranked 93). Bahrain is the fourth most expensive city in the Middle East (ranked 97 in the world) with a cost of living index of 90.4. The cheapest city surveyed in the Middle East (and cheapest in the world) is Sanaa in Yemen (ranked 299 in the world) with a cost of living index of 53.1.
Most expensive cities in the Middle East (Global rank in brackets)
1. United Arab Emirates, Abu Dhabi (45)
2. Qatar, Doha (59)
3. Israel, Jerusalem (93)
4. Bahrain, Manama (97)
5. Lebanon, Beirut (104)
6. United Arab Emirates, Dubai (115)
7. Iran, Tehran (148)
8. Palestinian Territories, West Bank (154)
9. Syria, Damascus (174)
10. Saudi Arabia, Riyadh (190)
The Americas most expensive city is Caracas, which is the world’s second most expensive city to live in for expatriates.
Brazil has 3 of the 4 most expensive cities in the Americas. Sao Paulo (ranked 7 in the world), Rio de Janeiro (ranked 11) are followed by Brasilia (ranked 14). Toronto (ranked 35) is the fifth most expensive city. New York (ranked 43) is the eighth most expensive city in the America’s and most expensive in the United States of America. Interestingly Canada now has 3 cities in the top 10 most expensive cities in the Americas. The cheapest city to live in the Americas is La Paz in Bolivia (ranked 294 in the world). The cheapest city surveyed in the United States of America is Indianapolis Ind (ranked 282 in the world).
Most expensive cities in the Americas (Global rank in brackets)
1. Venezuela, Caracas (2)
2. Brazil, Sao Paulo (7)
3. Brazil, Rio de Janeiro (11)
4. Brazil, Brasilia (14)
5. Canada, Toronto (35)
6. Falkland Islands, Stanley (36)
7. Bahamas, Nassau (41)
8. USA, New York NY (43)
9. Canada, Vancouver (51)
10. Canada, Calgary (61)
Figures used in this report were taken from Xpatulator.com’s cost of living database as at 1 April 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.
About Xpatulator.com
Xpatulator.com is the most comprehensive source of international cost of living information. We provide free international cost of living overviews and rank information covering 13 cost of living baskets and 300 global locations as well as 3 premium content calculators.
Founded in 2007, Xpatulator.com’s mission is to organize the world’s cost of living indices, exchange rates and relative hardship indices and make it accessible and useful to all.
Premium Content Calculators:
The SPPP report calculates how much you need to earn in another location to compensate for a higher cost of living, hardship, and the exchange rate, in order to have the same relative spending power and as a result have a similar standard of living as you have in your current location. Each new SPPP report uses 1 credit ($99).Recommended for a detailed comparison of 2 locations.
The COLA report calculates how much additional allowance (over and above your current salary) you need to earn in another location to compensate for a higher cost of living, hardship and the exchange rate, in order to have the same relative spending power and as a result have a similar standard of living as you have in your current location. Each new COLA report uses 1 credit ($99). Recommended for calculation of a cost of living allowance for short-term assignments.
The COLI report calculates cost of living indexes for the host locations you select, using the home location you specify. You can choose from any one of the 13 baskets or you can choose the overall cost of living index. Each new COLI report uses 1 credit ($99) allowing you to choose 1 home location and up to 300 available host locations. Recommended for the calculation of 3 or more cost of living indexes using your choice of base city.
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The full April 2011 list of all 300 international locations using all 13 basket groups is as follows:
April 2011 Rank Country, City
1 Japan, Tokyo
2 Venezuela, Caracas
3 China, Hong Kong
4 Switzerland, Geneva
5 Switzerland, Zurich
6 Japan, Osaka
7 Brazil, Sao Paulo
8 Japan, Nagoya
9 Liechtenstein, Vaduz
10 Norway, Oslo
