Stronger US dollar blasts Hong Kong up the global cost of living stakes

The US dollar peg, combined with weakened Western currencies, has made Hong Kong more expensive globally for visitors and international assignees according to the latest Cost of Living Survey by ECA International. This has resulted in Hong Kong’s dramatic leap from 98th to 29th position in the new global cost of living rankings.

 

The survey also shows that as America and Europe bear the brunt of the recession, strong Asian currencies are pushing up the cost of living for staff assigned to major Asian locations. Tokyo remains the most expensive location in Asia, due largely to the appreciation of the yen against other major currencies. Joining Japanese locations in the region’s top ten are the Chinese cities of Beijing and Shanghai as well as Hong Kong and Singapore.

 

“The strengthening of Asian currencies is the dominant factor contributing to the region being more expensive for visitors than it was 12 months ago,” explains Lee Quane, Regional Director – Asia, ECA International. “In that period, the yuan has continued to strengthen while the yen has appreciated by almost 8% against the US dollar. Many Western currencies, including sterling, the euro and the Swiss franc, have weakened. As a result, people coming from these economies into Asia will notice a considerable difference in costs compared with 12 months ago.”

 

Living costs for international assignees are affected by inflation, availability of goods and exchange rates, all of which can have a significant impact on expatriate remuneration packages. To help multinational companies calculate assignment salaries, ECA carries out a Cost of Living Survey twice a year comparing a basket of commonly purchased consumer goods and services in over 370 locations worldwide.

 

In Hong Kong, although the effect of inflation has been more moderate over the last year, the cost of goods and services are now higher for visitors and international assignees

 

“The major reason behind Hong Kong becoming more expensive for assignees is due to the strengthening of the US dollar over the year,” explains Quane. “Companies sending staff into Hong Kong and paying them in their home currency are likely to have seen the purchasing power of their staff adversely affected. On the flip side, this means that it is now cheaper for Hong Kong companies to send staff to most locations worldwide in comparison with 12 months ago.”

 

Not all Asian currencies have strengthened, however. The tumbling Korean won has seen Seoul, the region’s most expensive location for assignees just two years ago, fall to 17th position regionally and 101st worldwide. Likewise, the depreciation of the ringgit has made the cost of living cheaper for assignees heading to Malaysia, while the Thai baht, the Indonesian rupiah and the Taiwanese dollar have all depreciated against the US dollar in recent months.

 

Of the 15 Chinese cities featured in the survey, Beijing is the most expensive. New Delhi is the most expensive and Kolkata the cheapest of the 7 Indian locations included in the survey. The weakened Indian rupee, coupled with lower inflation has seen cost of living for expatriates in Indian locations fall below last year’s levels.

 

The Mongolian capital, Ulaanbaatar, is the cheapest location in Asia, with goods and services approximately a third of the cost there than when purchased in Tokyo.

 

Currency fluctuation has played a major role in cost of living ranking movements over the last year, but falling inflation in many countries and, in particular, the collapse of petrol prices from the record highs of last year, has also had an impact.

 

While price inflation has slowed down in many Asian cities compared with 12 months ago, it has fallen more dramatically in many Western countries where growth has been lower.

 

“Whereas Asian economies cushioned their citizens against rising fuel and food costs in 2008 through subsidies and price controls, Western governments did not,” says Quane. “Consequently, the effect of lower prices is being felt more in the West than in many parts of Asia.”

 

“It is essential to manage assignee pay effectively in times like this,” advises Quane. “Even if companies freeze assignee base pay in response to the recession, they may still find themselves paying a higher final salary once they’ve applied a larger cost of living allowance to take into account a stronger currency and higher inflation in an assignee’s country of assignment.”

 

 

The Danish capital, Copenhagen, replaces Oslo as the region’s most costly location for assignees. Current international economic conditions, and the fall in oil prices, have resulted in a weakened Norwegian krone.

 

The depreciation of the rouble against the US dollar, coupled with falling oil prices has led to a fall in Moscow’s position in the ranking. Within Europe, Swiss locations along with Helsinki, Paris, Berlin and Vienna are all now more costly for visitors than the Russian capital.

 

The continued weakness of sterling over the year has seen costs for assignees coming to the UK fall. Central London has dropped significantly in the ranking as many Western European and US locations become more costly than the UK.

 

The rallying of the US dollar over the last year has restored Manhattan to its former position as the most expensive North American locations for assignees in the survey.

 

Falls in cost of living in Brazil - a result of the depreciation of the real due, partly, to the decrease in demand for commodities - has seen Rio do Janeiro drop in the ranking making way for Port of Spain in Trinidad and Tobago, where the currency is linked to the US dollar, to become South America’s most expensive location.

 

With inflation continuing at a high rate in Venezuela, the national currency's official peg to the US dollar has meant that cost of living for visitors to the country have rocketed. Using the alternative dolar paralelo rate brings costs down.

 

“When sending staff into locations such as Venezuela, where recognised alternative exchange rates are available, companies need to consider carefully which rate to use in order to provide the most appropriate a cost of living allowance,” explains Quane.

 

The depreciation of both the Australian and New Zealand currencies against the US dollar between surveys – a result of falling commodity prices and the unwinding of the carry trade - has contributed to making cost of living there cheaper for many visitors in comparison with last year.

 

Sydney and Canberra are Australia’s most expensive locations followed by Melbourne.

 

Angola’s capital, Luanda, maintains its position as the most expensive location in the world for foreigners. While this may surprise some, certain items and brands typically purchased by international assignees can be very expensive in a location such as this where they are not readily available locally.

 

Maseru in Lesotho is the cheapest location in the survey for visitors.

 

“Disparities in living costs in Africa can largely be explained by differences in the strength of local currencies as well as in the availability of goods and services, which can often be affected by a country’s political situation,” explains Quane.

Zimbabwe‘s capital Harare, once the survey’s most expensive city for foreigners, stopped being included in the ranking in 2007 due to the exceptional spiralling inflation there. The Zimbabwean government’s recent decision to allow the use of foreign currencies in an effort to stem hyperinflation means that Harare has returned to the rankings in a more modest 180th position.

 

* Tables below:

 

ECA’s cost of living data compares a basket of 125 consumer goods and services commonly purchased by international assignees in over 370 locations worldwide. The data is used by ECA clients to calculate cost of living allowances for assignees. The survey covers:

 

Food: Groceries; dairy produce; meat and fish; fresh fruit and vegetables
Basic: Drink and tobacco; miscellaneous goods; services
General: Clothing; electrical goods; motoring; meals out

 

Figures used in this release were taken from ECA’s Cost of Living Survey:

 

ECA International’s cost of living indices are calculated based upon surveys carried out annually in March and September using a basket of day-to-day goods and services.  The data used above refers to year on year movements between ECA’s March 2009 and 2008 surveys.

 

Certain living costs such as accommodation, utilities (electricity, gas, water costs), car purchase and school fees are not included in the survey. Such items can make a significant difference to expenses but are usually compensated for separately in expatriate packages.

 

This comparison of cost of living was calculated on a base composed of various developed countries and is used to reflect an international lifestyle. Other indices available from ECA reflect specific city-to-city comparisons, and different levels of shopping efficiency.

 

ECA is the world’s leader in the development and provision of solutions for the management and assignment of employees around the world.

 

Delivering data, expertise, systems and support in formats which suit its clients, ECA’s offer includes a complete 'out-source' package of calculations, advice and services for companies with little international assignment management experience or resource; subscriptions to comprehensive online information and software systems for companies with larger requirements; and custom policy and system development projects for companies who manage thousands of international assignees around the world.