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About the Economist Intelligence Unit
About the Economist Intelligence Unit

About the EIU Worldwide Cost of Living survey
What is the EIU Worldwide Cost of Living Survey?
How are the prices gathered?
How is the cost-of-living index calculated?
Can I access background information on the cities in the survey?
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How are the prices gathered?

When and where is the survey conducted?

Why do the prices of some goods and services vary dramatically from survey to survey?

When and where is the survey conducted?

The fieldwork for the Worldwide Cost of Living surveys are carried out by the Economist Intelligence Unit researchers in all locations during the first week of March for the Spring edition of the study and the first week of September for the Autumn edition. Considerable care is taken to assess accurately the normal or average prices international executives and their families can expect to encounter in the cities surveyed.

Survey prices are gathered and listed from three types of stores: supermarket, medium-priced retailers and more expensive speciality shops. Only outlets where items of internationally comparable quality are available for normal sale are visited. While the majority of cities provides a wide selection of goods and stores at different price levels, this range narrows down considerably at several locations. Thus, in some cities the entire range of prices has to be obtained at the few stores where goods of internationally comparable quality are found. Local markets and bazaars are visited only if the goods available are of standard quality and if shopping in these areas does not present any danger to an expatriate executive or his family.

For certain items, eg monthly rent and clothing, there are many subjective factors, questions of personal preferences and taste at play, as well as a wide variety of choice. Therefore, the price data given for certain items should be considered to be merely an indication of the general level of prices in these categories, although all data are based on actual prices noted by our researchers. Furthermore, a few adjustments of the survey prices have also been made in some cases where seasonal discount sales and changes in brand names, package sizes and quality would have unduly distorted the index results. We have endeavoured, however, to limit use of this procedure to cases where, in our judgement, it would not entail misrepresentation of actual prices.

Why do the prices of some goods and services vary dramatically from survey to survey?

There are a number of explanations for the volatility of prices in the survey. Among the most common are:

* The inflation rate. Hyperinflation can mean prices increase dramatically within a city between surveys. Equally deflation means prices may drop, sometimes significantly. Remember too that inflation can hit some items much harder than others, especially in heavily regulated economies where prices of the most sensitive products and services are capped.

* Exchange rate / imports. Many of the goods included in the survey are imported products. If the local currency changes dramatically against the currency of the exporting country, the prices change too. As a result, imported clothing prices may have escalated by 200-300% while locally produced staples such as flour or rice may have increased by just 10%.

* Local shortages. Drought, flood, failed harvests, local disasters, panic buying and civil unrest-all affect local availability and prices. Some shortages are short-lived, others take longer to recover from. Availability fluctuates in any city but can be acute in developing countries. Prices found from one survey to the next will be more erratic where availability is a problem (eg Chinese cities).

* Political events. Governments may decide to ban imports or discourage locals from buying a certain country's items (for example, in the mid-1990s a "buy British last" campaign was instigated in Malaysia). Equally pressure groups may act to persuade people to boycott products originating from certain countries.

* New sources of products and services. New stores opening up can force prices down as they increase competition (this happened in Honolulu when the large US discount stores set up shop). Conversely average prices may "rise" when improved access to high-quality imports is made possible by international stores entering new markets (take Jakarta in the early 1990s, when a well-known regional store opened in the Indonesian capital with an impressive range of imported items). This factor also applies to schools and accommodation -- especially in developing markets as new residential blocks and associated facilities are built (as seen in Ho Chi Minh City and Hanoi in the 1990s, for instance). In a similar phenomenon, new models or brands entering the global market can push prices upwards as they become the "must-have" or norm -- for example, razor prices increased globally when Gillette introduced the Mach 3.

* Seasonal fluctuations. The prices of fresh fruit, vegetables and meat are all subject to seasonal variations. So too are hire car prices and hotel rates.

* Package size. Generally the larger the pack size the lower the unit cost. Correspondents collecting prices survey the most common local size from one survey to the next. However, markets change and new sizes are introduced, with implications for price levels.

* Prices denominated in foreign currency. In some countries goods or services may be paid for in a foreign currency. The EIU converts these prices into local currency at the exchange rate prevailing at the time of survey. For example, international school fees are often quoted in the relevant national currency (eg French school, French francs). In countries where the currency (and the economy) is particularly volatile, prices may be listed in US dollars one year and local currency the next (eg Moscow through the 1990s).

* Opening up of markets and deregulation. As governments welcome foreign investment and open up their markets to international companies, so the variety and availability of imported products improves. Deregulation and liberalisation is another factor affecting price levels: to take an obvious example, communication costs have fallen as telecoms industries throughout the world have been deregulated.

* Taxation. Products such as alcohol, cigarettes and petrol are subject to taxation, the levels of which can change quite dramatically from year to year.

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