Costliest Cities: S'pore's Ranking Up

Source : The Straits Times, March 11, 2009

London, European cities relatively cheaper as pound and euro plunge

DRAMATIC shifts in currency values have propelled Singapore towards the top of a survey of the world's most expensive cities.

Singapore is now ranked 10th most expensive city in the world, but economists here note that this reflects sharp exchange rate movements rather than changes in living costs. -- ST PHOTO: SAMUEL HE

The Republic leapt five places to 10th costliest city in the world in just six months, as European cities like Brussels and Dublin have become relatively cheaper places following the euro's plunge in value, according to the Economist Intelligence Unit (EIU) survey of 140 cities.

London fell from 8th to an incredible 27th on the list - reflecting the near 30 per cent depreciation of the British pound against the dollar over a half-year period.

Report editor Jon Copestak said: 'Two factors drive the relative cost of living - local prices and exchange rates.

'Normally our ranking of cities by cost of living is relatively stable, but in the current global climate, changes in exchange rates have significantly altered our assessment of the most and least expensive cities.'

The survey, which updates EIU's findings last September with the exchange rates that applied last month, now ranks Tokyo and Osaka as the most expensive cities in the world.

The euro and pound weakened dramatically during the interim as the financial crisis gained momentum, with markets witnessing a flight to perceived safe haven currencies such as the yen and the US dollar.

A stronger US dollar helped push Hong Kong - whose currency is pegged to the dollar - 17 places higher up to 11th, just behind Singapore.

The cost of living in Chinese cities like Shanghai, where the yuan is pegged to the dollar, rose steeply relative to cities in other countries.

The EIU's index, which measures the prices of 160 products and services such as food, clothing and utilities, but does not include commercial or residential rent, is designed to help companies calculate the pay packages they give to their expatriate employees.

Economists here caution that the survey's findings should be viewed in context, and were more a reflection of sharp exchange rate movements than actual changes in living costs.

'The euro has weakened because of the stress that European countries have come under due to the slowdown - but this is not going to persist,' said OCBC economist Emmanuel Ng.

'Over the next three to six months, we should see a fair chance of the major currencies being vulnerable to the dollar. But, once the mess clears and we actually see the bottom, the risk appetite will come back. There will be an interest to shift funds into other currencies to the US dollar's disadvantage.'

Mr Ng predicted that Singapore will fall back down the rankings as the euro strengthens and consumer prices continue to drop in Singapore relative to other countries.

Inflation here has plunged as oil and food prices have become cheaper. The Consumer Price Index slowed to just a 2.9 per cent gain in January over the same month a year ago. It jumped 4.3 per cent in December.

Costs of living are of increasing concern to businesses, which are keen to prune costs in the light of the economic downturn.

Said the American Chamber of Commerce's executive director Laura Deal: 'With the current economic environment and the challenges ahead, companies are looking at their budgets with different perspectives, and are trying to cut costs wherever they can.

'This could include moving expats to countries where costs of living are lower.'