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Tokyo most expensive city says Mercer’s 2009 Worldwide Cost of Living

By Workplace Staff

Tokyo has knocked Moscow off the top spot to become the world’s most expensive city for expatriates, according to the latest Cost of Living Survey from Mercer. But Canadian cites have become cheaper, with the Toronto the highest, in the 85th position.

Osaka ranks second, up nine places since last year, whereas Moscow is now in third place. Geneva climbs four places to fourth position and Hong Kong moves up one to fifth place. New York joins the top 10 in eighth place. Johannesburg has replaced Asunción in Paraguay as the least expensive city in the ranking.

In Mercer’s survey, New York is used as the base city for the index and scores 100 points. All cities are compared against New York and currency movements are measured against the US dollar. Tokyo scores 143.7 points and is nearly three times as costly as Johannesburg with an index score of 49.6.

The survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transportation, food, clothing, household goods and entertainment. It is one of the world’s most comprehensive cost of living surveys and is used to help multinational companies and governments determine compensation allowance for their expatriate employees.

A significant reshuffle of cities can be observed in this year’s ranking, mainly due to considerable currency fluctuations worldwide. The majority of European cities moved down in the ranking with Warsaw experiencing the most dramatic change, plummeting 78 places from 35th to 113th. London and Oslo, both previously in the top 10, dropped 13 and 10 places, respectively. The same trend can be seen in Australia, New Zealand and India. Sydney dropped 51 places from 15th to 66th and Mumbai has slipped down to 66th from 48th place.

Nathalie Constantin-Métral, senior researcher at Mercer, says, “As a direct impact of the economic downturn over the last year we have observed significant fluctuations in most of the world’s currencies, which have had a profound impact on this year’s ranking.”

Cities in the US, China, Japan and the Middle East have surged in the rankings. New York is a new entry in the top 10, jumping from 22nd to 8th place along with Beijing in 9th place, up from 20th in 2008. Japan now has two cities in the top 10 and Dubai has climbed 32 places to reach 20th.   

Constantin-Métral adds, “With significant exposure to multiple economies and currencies, multinational companies continue to be greatly affected by the financial crisis. The cost of expatriate programs is heavily influenced by currency fluctuations and inflation rates. Now that cost containment and reduction is at the top of most company agendas, keeping track of the change in factors that dictate expatriate cost of living and housing allowances is essential.”

Due to the strengthening of the US dollar, all cities in the US have experienced a rise in this year’s ranking. New York remains the highest-ranking city in the region and has also joined the global top 10 list this year of most costly cities, jumping from 22nd to eighth place. Los Angeles is up 32 places to 23rd and Washington is up 41 places to 66th.

“While rankings for US cities rose this year with the strengthening dollar, the dollar’s decline last year made US cities less expensive. The major take away is that relative costs shift with currency volatility making overseas assignment costs sometimes greater and sometimes smaller,” says Rebecca Powers, principal with Mercer.” Given the inherent expense of international assignments, companies with global interests should make sure that mobility programs support their short- and long-term business objectives and that they are part of a fully integrated global talent strategy.”

Among the cities in the US with significant movement in ranking this year are San Francisco, moving up from 78th to 34th place, Boston moving from 99th to 60th place, Honolulu from 77th to 41st place, Houston from 98th to 63rd place and Chicago from 84th to 50th place.  

Canadian cities have slipped down the index with its highest-ranking city Toronto down 31 places to 85th. Ottawa drops 36 places to 121st and Montreal is now in 103rd place, down from 72nd in 2008. “The Canadian dollar has weakened substantially against the US dollar so employees transferring from New York to Ottawa or Montreal now need fewer dollars to enjoy the same purchasing power as last year,” explains Powers.

European cities have experienced some of this year’s steepest falls in the ranking, with Warsaw plummeting from 35th to 113th place and Glasgow (129th place) and Birmingham (125th place) in the UK falling 60 and 59 places, respectively. German and Spanish cities all fell between eight and 11 places, whereas cities in Sweden, Ukraine, Czech Republic, Romania and Hungary all fell between 36 and 48 places. “As most European currencies have weakened against the dollar it has become more costly for companies based in this region to send expatriates and their families to US cities,” says Constantin-Métral.

While the vast majority of European cities have fallen in the rankings, most Middle Eastern cities have experienced a reverse trend. Both Dubai and Abu Dhabi have risen significantly in the ranking, moving from 52nd and 65th to 20th and 26th places, respectively. This is mainly due to the UAE dirham being fixed to the US dollar. Tel Aviv remains the most expensive city in the Middle East, although it is the only one in the region to move down in the ranking, from 14th to 17th place.

Several Asian currencies, including the Korean won, the Indonesian rupiah, and the Philippine peso, have weakened against a strong US dollar causing cities in those countries to drop in the rankings. Most dramatically, Seoul dropped from 5th to 51st place.

The Indian rupee also made a significant loss against the US dollar last year and all the Indian cities have moved down the ranking as a consequence. New Delhi moves from 55th to 65th place and Mumbai drops from 48th to 66th place.

Chinese cities experienced the reverse effect as the Chinese renminbi performed relatively strongly compared to most other currencies. Beijing is in ninth place, having moved up 11 places to join the global top 10 of most costly cities. Shanghai, Shenzhen and Guangzhou follow in 12th, 22nd and 23rd places, respectively.

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