International
Oslo replaces Tokyo as the world's most expensive city; Dublin in 16th place
By Finfacts Team
Feb 1, 2006, 10:05

After 14 years at the top Tokyo has been overtaken by Oslo as the world's costliest city in the latest findings from the Economist Intelligence Unit's Worldwide cost of living survey. Elsewhere an improving economic outlook has pushed Brazilian cities up the ranking and Asian cities make up many of the cheapest destinations.

Ha'penny Bridge, Dublin - the city is the 16th most expensive of 130 cities in the world

The bi–annual survey compares the cost of a representative basket of goods and services in dollar terms from over 130 cities worldwide to provide guidance for the calculation of executive allowances. The data quoted here used New York as a base index of 100 for comparisons. Among the main findings:

• Tokyo is no longer the world's most expensive city. Oslo has replaced it at the top.

• Despite decoupling the yuan from the weakening dollar, Chinese cities have seen a fall in relative living costs as the economy opens up.

• Reykjavik in Iceland has seen the largest jump in the relative cost of living over the last 12 months. Meanwhile the Brazilian cities of Rio de Janeiro and Sao Paulo experienced the sharpest jump in ranking on the back of economic recovery across the region.

• Besides Iceland's capital, Reykjavik, which jumped to third place ahead of Osaka. Paris, Copenhagen, London, Zurich, Geneva and Helsinki occupied the next six places. Dublin rose to 16th place. The more developed western European cities make up most of the expensive cities in the world. Moscow is the only exception in East Europe.

A landmark year

1991 was a landmark year for many reasons. It began with the launch of operation Desert Storm and finished with the official dissolution of the Soviet Union.

Also significant is that it was the last time that the most expensive destination in the world fell outside Japan, according to the Economist Intelligence Unit's Worldwide Cost of Living Survey.

2006 ranking City/Country (Last year)

1. (3) Oslo/Norway
2. (1) Tokyo/Japan
3. (8) Reykjavik/Iceland
4. (2) Osaka/Japan
5. (4) Paris/France
6. (5) Copenhagen/Denmark
7. (7) London/Britain
8. (6) Zurich/Switzerland
9. (8) Geneva/Switzerland
10. (10) Helsinki/Finland

In 1991 Tehran occupied the top spot thanks to an overvalued official exchange rate, with Tokyo coming second in the world rankings. Unsurprisingly, revaluations quickly sent Tehran to the bottom of the ranking, where it now languishes. Tokyo, meanwhile, has held the dubious honour of being the world's most expensive city ever since – sharing the title with Osaka briefly in 2001.

Despite spending so long at the top, the displacement of Tokyo comes as little surprise. A gradually weakening yen has been compounded by years of low inflation and deflation in the Japanese economy. Six months ago Oslo overtook Osaka as the second most expensive city in the ranking, making it a question of when, rather than if, Tokyo would follow suit.

Norway has seen strong economic growth following a recovery in 2004, enjoying high consumer confidence, rampant investment and still–low interest rates.

Regional round–up

Europe dominates the top
The position of Oslo at the top of the ranking highlights a much wider increase in the relative cost of living across Europe, driven by the long–term underperformance of the dollar. Reykjavik saw the largest proportional rise in the cost of living, gaining 19 percentage points on New York and moving above Osaka into third place. Eight of the ten most expensive cities in the survey are now based in Europe, although only Paris (France, 4th) hails from the euro zone.

Not surprisingly the more developed western European cities make up the bulk of the most expensive cities in the region (and the world). Only one city (Moscow, 29th) from eastern and central Europe features in the 30 most expensive destinations, compared with the presence of 20 cities in western Europe.

Despite this, cities from the transition economies are seeing advances in the relative cost of living, some buoyed by entry into the EU or accession talks. Belgrade (Serbia & Montenegro, 107th), Bucharest (Romania, 95th), Kiev (Ukraine, 82nd), Warsaw (Poland, 63rd), Prague (Czech Republic, 58th) and Istanbul (Turkey, 48th) all saw a relative jump of more than 5% in the cost of living.

Only two cities across Europe saw a decline in the relative cost of living. Tashkent (Uzbekistan) fell 12 places to 117th making it the cheapest city in the region alongside Almaty of Kazakhstan.

Living in Dublin now costs more than living in Berlin, Amsterdam, Stockholm, Singapore  and Lyon and lags only two places behind Hong Kong.

Latin America moves up as US cheapens
A strong regional performance in 2004 has filtered through to consumption and inflation levels in many countries of Latin America, causing a relative jump in the cost of living among many cities. Only four cities saw a decline in the relative cost of living in Latin America. Two of these cities, Quito (Ecuador, 100th) and Panama City (Panama, 95th), have dollarised economies and therefore have not seen the cost of living rise on the back of a weakening dollar. Asuncion (Paraguay, 124th) is the cheapest city in the region, with a cost of living index of just 45% of New York's.

The sharpest rise in the overall rankings came from two Brazilian cities Rio de Janeiro and Sao Paulo. Each city jumped 22 places to joint 87th on the back of rising consumer prices and a 25% increase in the value of the real.

In North America, Canadian cities are now more expensive than all but the largest cities surveyed in the United States. Of 16 US cities featured in the survey only New York (27th), Chicago (35th), Los Angeles (35th) and San Francisco (40th) are pricier than Montreal and Vancouver (joint 43rd).

Seoul surprises as Tokyo is toppled
Although Tokyo and Osaka both fell in the ranking, ending 14 years as the costliest cities in the survey, many cities in Asia have seen economic growth pushing the relative cost of living up.

Australia and New Zealand saw thanks to buoyant exchange rates and rising petrol prices. Seoul (South Korea, 13th), meanwhile, overtook Hong Kong (14th) as the most expensive city in the region after Tokyo and Osaka.

Despite rampant economic growth, and the decoupling of the yuan to the US dollar, Chinese cities have experienced a relative fall in the ranking as increased investment opens up pricing competition and lowers tariffs on branded goods in larger urban centres.

High levels of income disparity mean that, although Tokyo and Osaka remain the most expensive cities in the world, many cities in Asia offer much better value for money. Five of the seven lowest–priced cities surveyed are based in Asia. The cheapest of these is Manila (Philippines, 127th), also the second cheapest destination surveyed.

African inflation offsets Middle Eastern pegging
Cities surveyed in Sub–Saharan Africa saw costs generally rising because of high inflation. Lagos (Nigeria, 63rd), Lusaka (Zambia, 91st) and Nairobi (Kenya, 93rd) all experienced double–digit inflation. This had the greatest effect for Lusaka which rose 18 places in the ranking.

Conversely, cities in the Middle East saw a relative decline in living costs due to extremely low inflation, price controls (especially on fuel) and the pegging of so many currencies to the US dollar. In the Middle East only Dubai (UAE, 71st) and Cairo (Egypt, 113th) climbed the cost of living ranking.

With the cost of living set at around a third of that of New York, Tehran remains the cheapest destination in the ranking, a long way down from its position as the world's most expensive destination 14 years ago.