EXCLUSIVE: Bangkok has become a relatively cheaper destination to live according to the latest research from the Economist Intelligence Unit (EIU).
The city ranked in joint 62nd place in its annual Cost of Living 2015 research report, sharing the spot with three other cities: Hanoi in Vietnam, Lexington in the U.S. and Buenos Aires in Argentina. It has slipped down the ranking by five places (from 57th last year), becoming ‘relatively cheaper’ within the last 12 months.
A spokesperson for the EIU told Dot Property Group: “We see similar index movements for many of the cities in the Southeast Asia region. This is a result of a stronger U.S. dollar, pushing up prices in U.S. cities but making the cost of living relatively less expensive in other locations.
“Bangkok has become cheaper, relative to the U.S., as we use New York as a base city in the ranking.”
Singapore retained the accolade of the world’s most expensive city for a third year in a row but its lead over the next two cities in the ranking has nearly evaporated.
Zurich and Hong Kong follow closely in joint-second place with Hong Kong climbing seven places up the ranking in the last 12 months. London, New York and Los Angeles also move up the ranking to 6th, 7th and 8th place, respectively, displacing Sydney, Melbourne and Oslo from the ten most expensive cities. New York and Los Angeles moved up the ranking because of currency headwinds rather than significant local price rises.
In fact, the opposite may be true. With the falling cost of oil and a strong U.S. dollar pushing down prices, local inflation has been relatively low across the U.S. Despite this, New York is in its highest global position since 2002 and has risen by some 42 places up the cost of living ranking since 2011, when it was barely among the 50 most expensive cities, let alone the top ten.
The stronger U.S. dollar and weaker euro has pushed euro zone cities further down the ranking, especially as weak consumer sentiment and depressed commodity prices have undermined inflation in terms of both supply and demand.
The Australian and New Zealand dollars have also weakened significantly from highs of two years ago, making cities in Australasia more affordable to global travellers.
The unpegging of the Swiss franc from the Euro, coupled with structurally high income and price levels, means that Zurich and Geneva will continue to vie for the unenviable title of Europe’s most expensive city. Neither city has suffered from Eurozone austerity or economic fallout from falling oil prices to the degree of their EU or Norwegian peers.
Global prices have been depressed by commodity oversupply, especially oil. Meanwhile, bearish sentiment in China, Latin America and Europe have weighed on demand-side inflation. This has been compounded by a rise in retail competition from online or discount channels, which has had a further impact on prices. As a result, inflation has slowed across many cities, with deflation becoming increasingly prominent during the course of 2015. Given that the ranking uses New York as base city, most cities have also become relatively cheaper.
Five years ago the average cost of living index of all the cities surveyed was 87.8 percent (with New York as 100). Last year this was 79.7 percent. In the last 12 months it has fallen to just 71.5 percent.
Despite topping the ranking, Singapore still offers relative value in some categories, especially compared with its regional peers. For general basic groceries, Singapore offers the same value as New York. This compares with Seoul, which is 33 percent more expensive, Tokyo (26 percent) and Hong Kong (28 percent), implying that value for money can be found by those who seek it. However, Singapore remains consistently expensive in other categories.
It is the most expensive place in the world to buy and run a car, thanks to Singapore’s complex Certificate of Entitlement system. Transport costs in Singapore are 2.7 times higher than in New York. Alongside Seoul, Singapore is also a very expensive city in which to buy clothes and pay for utility costs.
A bumpy ride ahead
The cost of living is always changing and there are already indications of further changes that are set to take place during the coming year. The fall in the oil price in 2015 and early 2016 will put downward pressure on emerging and oil producing countries’ currencies, which will have a significant impact on pricing. On the one hand, falling oil prices will drive down inflation for goods and incomes for exporting countries.
On the other hand, it will free up discretionary income in importing countries, which could fuel price rises in other categories. Commodity prices, which are also falling back, could act as further deflators in some markets. While it is clear that oil markets remain oversupplied, there are reasons to believe that there could be a slight rebound in prices in 2016.
Recent oil price falls are not a result of fundamental changes in supply and demand, and lower output from struggling U.S. shale firms could result in higher oil prices. Meanwhile, harvests continue to be subject to the whims of global weather systems and the agricultural glut of recent years is expected to moderate.
The impact of exchange-rate movement will also be felt more strongly this year. Argentina, Japan, Zambia, Australia, New Zealand, Canada, Russia and Ukraine have all been susceptible to big currency declines. Conversely, a stronger dollar is raising the ranking of U.S. cities and those that peg to it. The U.S. Federal Reserve Bank raised interest rates in December 2015, which is expected to have a global impact, given the prominent role of US fiscal and monetary policy on an international stage. Moreover, the U.S. dollar is on its fastest rise in 40 years.
Meanwhile geopolitical issues, ranging from uncertainty over a “Brexit” referendum to sanctions over Ukraine, are compounding currency weakness in Europe and the former Soviet Union, which will also have an impact beyond the countries most affected. The rise of online competition and discount retail channels is also undermining prices in many more mature markets, but as economies recover, expectations of higher spending could see prices moving back up.
Most crucially, instability and conflict around the world could continue to drive localised shortage-driven inflation, which will have an impact on the cost of living within certain cities. However, local inflation driven by instability is often counteracted by economic weakness and slumping exchange rates. As a result, cities that see the highest inflation will see their “relative” cost of living fall.
With emerging economies supplying much of the wage and demand growth, it seems likely that these locations, especially cities in China, will continue to become relatively more expensive. However, Chinese growth is slowing and measures have been taken to weaken its currency amid a stock market decline that could prompt a new wave of consumer caution. This could, in turn, drive down spending and undermine the wage and price inflation that has been taking place over the past decade.
