• Apart from Tokyo and Osaka the ten most expensive cities are all European, with London rising four places to 6th, behind Copenhagen and Zurich. The strength of the euro has been instrumental in catapulting Paris into joint third place past non-eurozone cities like Copenhagen and Zurich and to within 10% of Tokyo.

• The pegging of the Hong Kong dollar to the US dollar has seen Hong Kong drop out of the top 10 most expensive destinations into 12th place. Hong Kong had occupied a position in the top 5 since 1997.

• Unsurprisingly US cities have continued to see relative living costs fall dramatically. New York has dropped 14 places to 27th over the past twelve months, making it relatively cheaper than Australian cities like Sydney (14th) and Melbourne (18th).

• Economic problems in Africa, Asia and Latin America have seen many cities remain cheap. Stabilisation in Argentina and Brazil have failed to lift cities such as Buenos Aires, Rio De Janeiro or Sao Paulo out of the bottom 20. Of 133 cities surveyed the Iranian capital, Tehran, is the world’s cheapest city.

Eurozone cities rise significantly
The weakness of the dollar has caused European cities to rise most significantly in the rankings. They now dominate the top end of the table. Just five cities of the most expensive 25 are from outside Europe.

Traditionally expensive cities from outside the eurozone such as Oslo and Zurich have been caught by cities such as Paris, which occupies joint third spot with Oslo. Vienna (10th) is the other eurozone city in the top ten. A strong pound has also seen London rising from 10th to 6th place. Portugal remains the cheapest eurozone country, with Lisbon (54th) being the only “old EU” city (ie excluding those in the ten new member-states) outside the top 50. Athens, home to the upcoming Olympic games, also offers good value as the second cheapest eurozone destination.

Transition economies surveyed ahead of their accession to the EU remain significantly cheaper than their West European counterparts. Moscow (33rd) is the most expensive East European city. With a cost of living of just over half that of New York, Romania’s Bucharest (113th) is the cheapest city in Europe.

US cities fall while Latin America stabilises
The slide of US cities down the rankings has continued apace, with only New York (27th) remaining in the top 30 and only five other cities occupying places in the top 50 of the rankings. Atlanta (80th), the lowest ranked US city, is now cheaper than any Canadian city surveyed, with a cost of living of just over half of that in Tokyo. Canadian cities have leapfrogged many US cities with Montreal (54th) jumping nine places in rankings.

Following a decline in recent years Latin American cities have generally found their positions stabilising, although they remain towards the bottom of the rankings. Mexico City (64th) has overtaken San Juan of Puerto Rico as the region’s most expensive city, despite falling eight places in the ranking itself. The continuing political and economic upheaval in Venezuela has made Caracas (131st) the region’s cheapest city falling 22 places to joint second from bottom in the overall rankings.

Asia and Australasia take the two-tier approach
Despite seeing the relative cost of living rise against New York, Tokyo (1st) and Osaka (2nd) are being caught by European cities thanks to years of negative inflation and currency weakness compared with the European economies. A similar lack of inflation in China and Hong Kong combined with the pegging of the renminbi and Hong Kong dollar to the US dollar has seen these cities slip down the rankings. Hong Kong (12th) remains the most expensive Asian city outside Japan, but has dropped out of the top five for the first time since 1997.

Some of the biggest movers in the region (and the world) have been Australian cities. The strength of the Australian dollar and the aftermath of a spike in inflation caused by the 2000 introduction of a goods and services tax has seen a steady rise for Australian cities. Both Sydney (14th) and Melbourne (18th) have entered the top 20 thanks to a strong currency despite being ranked 40th and 43rd respectively last year.

Less developed Asian economies remain significantly cheaper, with Manila (131st) occupying the joint second from bottom spot in the overall rankings and 6 further cities offering a cost of living of less than half of that in New York.

Currency pegging has biggest influence in Africa and Middle East
Middle Eastern economies have seen a decline in the relative cost of living due to the pegging of many currencies to the US dollar. Despite Kuwait City’s growing role as a conduit for trade in Iraq it has fallen seven places in the rankings to 91st place. Tehran, nearly three times cheaper than New York, remains the world’s cheapest city following the abolition of multiple exchange rates in 2002.

While economies in the Middle East with currencies pegged to the US dollar have seen the relative cost of living continue to slide, those in Africa pegged to the euro have seen relative costs rise. Abidjan in Cote D’Ivoire (29th) is the most expensive city in the region and the only African or Middle Eastern city in the top 50. Harare (122nd) has also risen slightly in the rankings as hyperinflation offsets the rapid devaluation of the Zimbabwean dollar.

1. There are two major reasons why a city’s cost of living index will change over time: exchange rate movement and price movement. Since a common currency is required in making a comparitive calculation all local prices are converted into dollars, which emphasises the role of currency movement. If, for example, a currency strengthens or inflation pushes the price of goods up, so the relative cost of living in that country will also rise.

    

2. Worldwide Cost of Living, the bi-annual Economist Intelligence Unit survey, compares prices and products in over 130 cities around the world. Its purpose is to provide companies with an unbiased and independent guide from which allowances can be calculated for executives and their families being sent overseas. The Economist Intelligence Unit can calculate indices based on any one of the cities. The data quoted here used New York as a base index of 100 for comparisons.