MercoPress. South Atlantic News Agency

Mexico City with sharpest cost of living decline in the region

Mexican Stock Exchange Building

The latest Economist Intelligence Unit cost of living survey highlights the way in which sharp shifts in exchange rates in recent months have altered the relative cost of living in cities around the world.

By comparing the ranking of cities in September 2008 (when the price survey was conducted) to the ranking in February 2009 (adjusting the September price data for recent exchange-rate movements), it is possible to see which locations have been relative winners or losers as a result of the currency dislocation

Rebasing exchange rates from parallel rates to official rates has prompted a dramatic rise in the cost of living in Caracas. In 2007, when parallel rates were more commonly applied to Venezuelan prices, Caracas was the joint cheapest city in the survey.

The adoption of official rates makes Caracas more expensive than New York, when just over a year ago it was almost two-thirds cheaper. This makes Caracas the most expensive city in region, and the 21st most expensive of the 132 surveyed.

Mexico City experienced the sharpest fall of all cities in the region, by 36 places to 97th in the ranking. Dollarized economies in Panama and Ecuador meant that Panama City and Quito both rose by 12 places in the survey. Both cities, however, still represent good value for money—in joint 108th place and almost 40% cheaper than New York.

After Caracas, Guatemala City (67th) is the most expensive city in the region, but has climbed by 14 places in the ranking thanks to relatively cheaper prices in other locations. The Brazilian cities of Rio de Janeiro and São Paulo (joint 83rd), previously the most expensive in Latin America, saw a drastic fall in the relative cost of living of 22-23 index points, benefiting carnival goers. Asunción (Paraguay), in 124th place, has also fallen substantially to become the cheapest city in the region and the eighth cheapest surveyed.

In Europe Oslo (Norway), previously the most expensive city, has fallen to fifth place, below Paris (France) and Copenhagen (Denmark). London (UK), originally ranked eighth, has slid dramatically in line with a weak sterling to joint 27th position, below New York (US) for the first time since 2002. Reykjavik (Iceland), one of the early casualties of the current global malaise, was the fifth most expensive city last year. It fell to 39th using exchange rates from September 2008, but by February this year had fallen to 67th in the ranking.

Jon Copestake, editor of the report, comments: “Two factors drive the relative cost of living: local prices and exchange rates. Normally our ranking of cities by cost of living is relatively stable, but in the current global climate changes in exchange rates have significantly altered our assessment of the most and least expensive cities.”

The main changes in the ranking, achieved by applying February 2009 exchange rates to the original price data collated in September 2008, occur among the most expensive cities. The decline of European currencies, most notably the euro, sterling and the Norwegian krone, has driven a significant weakening in the relative cost of living for many European cities. Conversely, a stronger yen now means that the Japanese cities of Tokyo and Osaka have become the most expensive cities in our survey.

West European cities still dominate the top ten worldwide, with just three cities (Tokyo, Osaka and Singapore) from outside Europe. Nevertheless, the cost of living gap has closed. The strong US dollar has meant that cities in the United States, along with any country that pegs its currency to the dollar, have jumped in the ranking. New York, Los Angeles and Chicago have risen from joint 39th to joint 23rd.

Much less affected are the lower-cost locations in the world. The cheapest cities in the survey remain predominantly Asian, with four of the bottom five hailing from the Indian subcontinent: Kathmandu (Nepal), 128th; New Delhi and Mumbai (India), 129th and 130th respectively; and Karachi (Pakistan), 132nd.