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Top 5 cities in the Cost of Living worldwide rankings

Top 5 cities in the Cost of Living worldwide rankings, by region

Methodology Overview

Understanding the rankings in Mercer's Cost of Living survey

Mercer's Cost of Living rankings are released annually and measure the comparative cost of living for expatriates in 214 major cities. We compare the cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. We use New York City as the base city for the rankings and the US dollar as the base currency.

Two main factors determine a city's position in Mercer's Cost of Living rankings:

1. the relative strength of the relevant currency against the US dollar in the 12 months between ranking (March 2011 to March 2012 in this case); and
2. price movements over the 12 month-period compared to those in New York City as the base.

In addition to currency fluctuation and local price movements, cities' ranks can also change based on the movement of other cities in the ranking.

How currency fluctuations affect rankings

Let's look at some of the currency variations between the 2011 and 2012 Mercer Cost of Living surveys.

Generally, currency fluctuations have remained moderate between the 2011 and 2012 ranking periods. But the US dollar's weakening against some currencies, such as the Australian and New Zealand dollars and the Japanese yen, pushed affected cities up in the rankings. The yen's strength against the US dollar caused Tokyo to climb to the top position in the rankings list. Six of Australia's biggest cities appear in the top 30, and have all moved up since 2011. Expatriates in New Zealand experienced a particularly considerable rise in cost of living in the prior 12 months - both Auckland and Wellington jumped more than 60 places in our rankings.

The converse is also true. US expatriates who saw the US dollar appreciate in comparison to their host country currency are experiencing a lower cost of living. One of the currencies losing value versus the dollar since the 2011 rankings release was the Brazilian real. This pushed Brazilian cities in our rankings - São Paulo (12th), Rio de Janeiro (13th) and Brasilia (45th)- down in the rankings. Cuba's convertible peso also depreciated against the dollar, leading to Havana's moving 46 places down in the rankings to number 99. The weakening of the euro also affected the rankings, particularly by lowering the relative cost of living in German cities.

Price movements

Price increases in certain countries and regions also affected the cost of living for expatriates stationed there. Strong inflation in Argentina pushed Buenos Aires up 38 places in the rankings. And price increases in Venezuela led to Caracas rising 22 places in the rankings to number 29 in the world.