Cities such as Tokyo, Luanda and Hong Kong are always thought of as some of the most expensive cities to live in for expats. However, according a recent report, Switzerland’s cities are earning the dubious honour of being the most costly in the world.
Zurich in Switzerland, with a cost of living index of just under 137, (New York = 100) is ranked as the most expensive city to live in, worldwide, according to Xpatulator.com's April 2013 international cost of living rankings.
Thimphu, Bhutan, with a cost of living index of less than 45 (New York = 100), is ranked the cheapest. Tokyo, with a cost of living index of 135, has dropped two places to become the third most expensive place to live, while Geneva, also in Switzerland, moves up from third to become the second most expensive location in the world.
How the data is collected
The cost of living rankings, released every quarter, measure the comparative cost of living in 780 locations , covering every country worldwide.
The cost of living comparison uses local prices for defined quantities of the same goods and services, converted to a single currency. Sources include local service providers in each location, international service providers, official governmental statistics and global agency data. The data is quality assured and manually checked by Xpatulator analysts.
The prices of similar, related, items have been grouped together into 13 basket groups and the cost of living index calculated for each basket in each location. The 13 basket groups are the result of extensive research of actual spending habits ensuring the cost of living indexes reflect a reality-based international expenditure pattern.
Why is Switzerland so expensive?
Zurich and Geneva are the two most expensive places in the world. The most obvious reasons are the accommodation costs, the high standard of living, and high wages. But why is this the case?
There are other factors involved such as restricted competition, whereby prices are far higher than the real value of the commodities or services involved. Many trades in Switzerland are protected by corporations or guilds which restrict the number of people allowed to practice their particular trade, and who set high mandatory prices for their services.
Switzerland is fragmented into different cultures and different languages, in different geographical areas. In comparison to most countries, people do not like to move and will remain in the same area all their life.
Service providers in any given area therefore have small, well-defined mature markets where they know their competitors well. This means they tend to set prices high in a relatively "captive" small market.
The Swiss economy has traditionally always been organized this way and because many people profit from the system there is resistance to changing to a freer economy. Bargain hunting and price negotiation are not part of Swiss culture. They are accustomed to paying high prices and do not like to question them.
Currency fluctuations
Why is Tokyo no longer the most expensive place in the world? The slight decrease in the relative cost of living in Tokyo (compared with the rest of the world) is not only due to Japanese deflation and the weaker yen but it is also due to rising prices elsewhere in the world.
In terms of currency changes, while the Swiss franc was 5% weaker against the US dollar on 1 April 2013 compared to the same time in 2012, it has been relatively volatile this year. Peaking close to its 2012 high at 1.10 USD to the CHF in February and while it was at its lowest of 1.05 USD around 1 April 2013 compared to last year's low of just over 1.01 USD in late July 2012.
The Japanese yen on the other hand has weakened by more than 20% against the US dollar since September 2012 when 1 US dollar bought around 0.0128 JPY compared to 0.01062 JPY around 1 April 2013.
Article submitted by: Steven McManus, CEO and founder of Xpatulator.com