The OECD defines a cost of living index (COLI) as an index that measures the change in the minimum expenditures that would be incurred by a utility-maximizing consumer, whose preferences or tastes remain unchanged, in order to maintaining a given level of utility (or standard of living or welfare). Consulting firm Mercer runs a yearly survey of the most expensive cities around the world for expatriates. In the 2012 ranking, Tokyo, Japan, leads Luanda, Angola, and Osaka, Japan.

Mercer Worldwide Cost of Living Survey 2012

 

  • Data is from the Mercer Worldwide Cost of Living Survey 2012.
  • The larger the circle and the higher the value the more expensive the city.

 

Mercer Worldwide Cost of Living Survey 2012 (jump to rankings)

Cost of living indices are often used in employment contracts, pension benefits, and government entitlements—such as employment benefits—to make adjustments for time and geographic location on expenditures.

Cost of living calculations are also used to compare the cost of maintaining a certain standard of living in different geographic areas, and a cost-of-living index is often used by employers in adjusting salaries for international assignments. Geographic differences in cost of living can be measured in terms of purchasing power parity.

The International Labour Organization (ILO) defines a consumer price index (CPI) as an index constructed to measure changes over time in the general prices of consumer goods and services. A CPI may be used to measure the effects of price changes on the cost of maintaining one’s standard of living.

Although the two are often used interchangeably and a CPI is often used in cost of living calculations, there is a basic difference between a CPI and a COLI: the CPI simply measures changes in the pricing of a basket of goods and services over time or location while a COLI takes into account how external forces—such as the effect of changing income tax rates on after-tax income—affect the minimum expenditure in maintaining a certain standard of living.

Mercer 2012 Worldwide Cost Of Living Survey

One of the most recognized cost of living indeces is produced by global HR advisory firm Mercer. The Mercer 2012 Cost of Living Survey studied 214 major cities across five continents and evaluated a range of goods and services, up to 200 items including housing, transport, food, clothing, household goods and entertainment. It also measured currency movements against the US dollar. The survey uses New York City as a baseline in ranking cities.

The most expensive city for expatriates to live in 2012 is Tokyo, Japan. Luanda, Angola, comes second, followed by Osaka, Japan, Moscow, Russia, Geneva, Switzerland, Zurich, Switzerland, Singapore, N'Djamena, Chad, Hong Kong and Nagoya, Japan.

Many Swiss and Japanese cities appear toward the top of the ranking. African cities also tend to score very high on cost of living, particularly because the Mercer survey measures the cost of goods and services versus income of citizens, which in many countries in Africa is very low. Many European cities fall in the 2012 ranking because of the weakening of local currencies, including the euro, against the US dollar.

Watch Nathalie Constantin-Métral and Marie-Laurence Sépède of Mercer discussing the 2012 results of the Cost of Living Survey.

Tel Aviv, Israel (31,) is the most expensive city to live in the Middle East and San Paolo, Brazil (12,) across the Americas.

Karachi, Pakistan (214,) is the world's least expensive city for expatriates among those surveyed in 2012. Less than one-third as expensive as Tokyo. Skopje, Macedonia (207,) is the least expensive in Europe, Tunis, Tunisia (209,) in the Middle East and Africa, Winston-Salem, North Carolina (195,) in the United States.

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  • Base City: New York, US