Osaka and Seoul join Singapore and Hong Kong in the top ten as the most expensive cities in Asia. The European cities of Geneva, Zurich and Copenhagen join Paris in the top ten.
The full top ten most expensive cities in the world according to the survey are as follows (and the index based on New York = 100):
- Singapore – 107
- Paris (France) – 107
- Hong Kong (China) – 107
- Zurich (Switzerland) – 106
- Geneva (Switzerland) – 101
- Osaka (Japan) – 101
- Seoul (South Korea) – 100
- Copenhagen (Denmark) – 100
- New York (USA) – 100
- Tel Aviv (Israel) – 99
- Los Angeles (USA) – 99
The EIU reports that last year inflation and devaluations were prominent factors in determining the cost of living with many cities tumbling down the rankings owing to economic turmoil, currency weakness or falling local prices. Argentina, Brazil, Turkey and Venezuela experienced all of these conditions, leading to cities in these countries seeing a sharp fall in their cost of living ranking.
The survey uses New York as the base city and the average against this base has fallen to 69% from 73% last year, significantly down from the average of 89% ten years ago.
The EIU say that 2018 saw strong US economic growth and steady monetary policy tightening by the Federal Reserve which led to a sharp appreciation of the US dollar. With this strengthening of the dollar against other currencies all but two US cities rose in the rankings. The highest climbers were San Francisco, Houston, Seattle, Detroit and Cleveland.
The gains that the Euro made against the dollar went in to reverse in 2018 as economic momentum slowed. Paris was the only Euro area city in the top ten and has moved up from seventh to joint top in the last two years. Only alcohol, transport and tobacco offer value for money compared to other European cities.
The categories of costs vary in different regions with Asian cities tending to be the priciest for grocery shopping. European cities tend to be highest in household, personal care, recreation and entertainment.
The monetary tightening and strengthening of the US dollar have driven currency volatility in several emerging markets. In a few instances, such as Turkey and Argentina the combined factors of external imbalances, political instability and poor policymaking resulted in a major currency crisis. Istanbul had the sharpest decline falling 48 places to 120th caused by the slide in the Turkish Lira and annual consumer price inflation surging to 25.2% in October 2018.
Currency devaluation in Argentina has resulted in the capital, Buenos Aires, also falling 48 places to joint 125th.
The ten cheapest cities in the world and the index based on New York = 100):
- Caracas (Venzuela) – 15
- Damascus (Syria) – 25
- Tashkent (Uzbekistan) – 33
- Almaty (Kazakhstan) – 35
- Bangalore (India) – 39
- Karachi (Pakistan) – 40
- Lagos (Nigeria) – 40
- Buenos Aires (Argentina) – 41
- Chennai (India) – 41
- New Delhi (India) – 43
Asia is home to some of the world’s most expensive cities but also to many of the world’s cheapest cities. The cheapest cities have traditionally been in South Asia, particularly in India and Pakistan. Bangalore, Chennai, New Delhi and Karachi remain in the bottom ten, the EIU say that India is tipped for rapid economic expansion, although wage and spending growth per head will remain low. With income inequality low wages are the norm, limiting household expenditure and creating many tiers of pricing and strong competition from a range of retail sources. This combined with a plentiful supply of cheap goods from rural producers and some government subsidies has kept prices down.
The position of cheapest city has been taken by the Venezuelan capital of Caracas, which saw a severe decline in economic conditions in 2018, with hyperinflation and a breakdown in public services causing social unrest. The Syrian city of Damascus was ranked the cheapest city last year but moves to second spot this year.
Looking forward to 2019 the EIU expects global growth to slow in 2019 reaching its nadir in 2020. They point to the US-China trade war as creating deteriorating external conditions which are likely to continue in 2019. They do not expect the strength of the US dollar to continue as softening of the dollar seen since December are forecast to continue with depreciation of the Dollar against the Euro and the Yen expected in late 2019 as the US economy slows more sharply.
Oil prices, which bottomed out in 2016 rose in 2017 and 2018 along with other commodity prices. This will have an impact on prices. The EIU say that oil prices will continue to weigh on economies that rely on oil revenues, which could result in austerity, economic controls and weak inflation persisting in affected countries, depressing consumer sentiment and growth.
The EIU say that the upheavals to the trade agreements and international relations caused by President Trump may push up import and export prices around the world as treaties unravel or come under scrutiny. Also measures adopted in China to reduce growing levels of private debt are expected to cause a slowdown in consumption and growth over the next two years with potential consequences for the rest of the world.
Instability and conflict may continue to fuel localised shortage-driven inflation, but this is often counteracted by economic weakness and slumping exchange rates. This means that cities with the highest inflation often see their cost of living fall compared to other global cities.
Emerging economies will supply much of the wage and demand growth and the EIU say that it is likely that these cities will become relatively more expensive as economic growth and commodity prices recover. However, they point out that this price convergence is a long term trend and in the short and medium term major movements in the cost of living can be caused by economic shocks and currency swings.