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Mobility Basics: Why do cost of living indices change?

When it comes to the application of cost of living indices, the aim is always to protect the assignee’s purchasing power in the assignment location, making sure they are neither better nor worse off than if they had stayed in the home country.

We live in a fast-paced world where economies are constantly evolving: as a consequence, the Cost of Living Adjustment (COLA) will always be a snapshot of the circumstances at the point the data was collected. Almost like a real photograph, it has the ability to capture and “freeze” a specific moment in time, and as a consequence it might not necessarily align with what is perceived daily by the assignees on the ground.

There are always two factors that impact the index: exchange rates and price changes of the ECA shopping basket in both home and host locations (the relative inflation).

Exchange rates 

If we aim for a true comparison of prices in the home and host locations, knowing relative currency values is of paramount importance. Cost of living indices are directly linked to exchange rates, and updating an index for a new exchange rate at review time might cause the index to increase or decrease, as illustrated in the graphs below.

If the home country currency loses value against the host country currency, the index will be impacted in a positive way and pushed upwards: more home country currency is now needed to buy the same amount of host country currency.

On the other hand, if the home country currency has appreciated against the host country currency, the index will decrease: less home country currency is now needed to buy the same amount of host country currency.

The fluctuations of exchange rates represent a significant challenge for global mobility professionals, particularly when it comes to the actual delivery of the assignee’s package. We delve deeper into this topic in this blog.

Price changes

The ECA shopping basket is uniquely designed to measure expatriate expenditure while on assignment and contains over 170 key items. These items represent the goods and services assignees purchase on a daily basis. For this reason, the index is bound to be affected by the relative changes in home and host prices, as illustrated below.

If the prices in the host location increase more than in the home location, the index will increase.

And if prices in the home location increase more than in the host location, the index will decrease.

Quite often, assignees will be unaware of how prices are increasing in their home country. This means they would likely be surprised to see a decreased index when they have seen prices rise in their daily life while purchasing goods and services in host location shops. This is particularly relevant in the current economic climate, where cost of living increases are a reality for most of us all over the world.

It is therefore good practice to remind assignees that costs are also increasing for their peers back home, and that the index is designed to sustain the same standard of living that they would be experiencing if they had not gone on assignment abroad. 

If a company wishes to take into account the effect of home price changes, this would need to be done by reviewing the notional home salary of the assignee – in the same way as this would be done for the assignee’s home country peers. Options for how to review expatriate salaries are discussed in this blog.


Now that we have discussed the theory of index movements, let’s put it into practice and look at the following example focusing on an assignment from Central London in the United Kingdom to Sao Paulo, Brazil.

In March 2022 ECA measured a Standard index of 102.6 at an exchange rate of GBP (British pounds) 1 = BRL (Brazilian real) 6.868.

Six months later, in September 2022, ECA measured a Standard index of 122.2 at an exchange rate of GBP 1 = BRL 6.055.

Let’s look at this in more detail.

Exchange rates: in March 2022 GBP 1 was buying BRL 6.868, but by September 2022 GBP had weakened against BRL and was buying only BRL 6.055. As a consequence, assignees needed more home currency to buy the same amount of BRL, which had a positive impact on the index.

If we update the March 2022 index to account only for the effects of the exchange rate movements, we obtain the following:

Price changes: we now need to look at the effects of price changes in the home and host countries for the same six-month period. ECA measured that prices of the items in the shopping basket had increased by 3.1% in Central London, whereas prices in Sao Paulo had increased by 8.3%. Remember, ECA’s measure of price changes will differ from government sources as they are measuring slightly different things. As prices increased more in Sao Paulo than in Central London, this had a positive impact on the index. The index is then updated once again to take into account these price changes as follows:

To summarise: between March and September 2022 the overall change was about 32.2%, as the index was positively impacted by both the strength of BRL against GBP and the higher increase in prices in Sao Paulo. In the example below (family size: married with two children; gross income GBP 100 000; net income GBP 67 049) the assignee’s purchasing power has been protected, as the host spendable element has increased to reflect the new higher index.

The higher home spendable in September 2022 reflects the figures from new government expenditure tables for the UK. Due to the current cost of living crisis, people are not able to save as much money, needing to spend more on goods and services. More information on spendables can be found on this blog.

Home Spendable (GBP)
Host Spendable (GBP)
Exchange Rate    
Host Spendable (BRL)
March 2022
Index: 102.6
42 439
1 103
43 542
GBP 1 = BRL 6.868
299 049
September 2022
Index: 122.2
42 990
 9 544
52 534
GBP 1 = BRL 6.055
318 092


To help our clients, ECA publishes articles after each COL survey summarising the major trends and changes around the world. Stay tuned for the COL highlights map coming up later this month!

ECA can support you and your team with advice on cost of living, price changes and exchange rate management. Your account manager will be more than happy to help you with explaining any index movements, so do get in touch.

  Please contact us to speak to a member of our team directly.

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