Dubai and Abu Dhabi move up the ranks of expensive cities

Deflation in other cities contributed to the rise of Abu Dhabi and Dubai on the list.

Despite slowing inflation, Dubai and Abu Dhabi have climbed up the ranks of the world's most expensive cities for expatriate workers because of the strengthening US dollar, according to a new report. The study by ECA International, the global human resources firm, ranked Dubai 126 out of 370 cities worldwide, up from 178 a year ago. Abu Dhabi was ranked lower at 154, up from 187 a year ago.

While the cost of day-to-day living was not increasing in the two emirates at the same rate as last year, the strong dirham compared with weak currencies and deflation elsewhere had pushed the two cities up the ranks, said Lee Quane, the general manager for ECA in Asia. "That's made the cost of living in locations which either use the US dollar or are currently pegged against the US dollar relatively more expensive," he said.

The bulk of the cities in the Middle East, many of which peg their currencies to the dollar, also moved up the rankings. The most expensive city in the region was Tel Aviv, which moved from 38th to 24th. Jerusalem ranked second in the Middle East at 27, up from 39, and Lebanon came in a distant third at 77, up from 144. While there continues to be inflation in cities such as Dubai and Hong Kong, deflation in many European locations has caused them to rise in the ranks, said Mr Quane.

Globally, Luanda in Angola was the most expensive city for the second successive year. Tokyo came in second place, moving up the list from 13 last year on the back of a strengthening yen. Nagoya, Japan's fourth-largest city, was ranked third, up from 20th. ECA's cost-of-living measure, conducted twice a year, was based on a basket of 25 everyday goods and services, such as meat and fish, vegetables, electrical goods and miscellaneous services, but not housing costs.

Mr Quane said rents and property prices were left out of the equation because many multinational companies paid for their employees' living costs and the measure was designed to reflect day-to-day costs. Robert Ziegler, the vice president of AT Kearney management consultancy in Dubai, said fewer employees brought to the UAE were signing contracts with full accommodation costs and rent was a key component of their living costs.

Andy Barnett, a professor of economics at the American University of Sharjah, said the true cost of living would need to incorporate housing. "That is the major cost here," said Prof Barnett. "It's not automotive, it's not petrol, it's rent. So that omission would be huge. And those costs have fallen very substantially in Dubai." Inflation has also slowed from an estimated 12 per cent to 15 per cent last year to roughly 5 per cent now, he said.

"Last year, in particular for Qatar and the UAE, the most important issue was inflation," he said. "It's not now. You don't hear people talking about it as a great concern." Still, he said Dubai's and Abu Dhabi's rise in the ECA's rankings were an accurate reflection. However, the Emirates' rise in the rankings had a positive side effect, said Mr Quane, as UAE residents travelling abroad could get more for their dirham.

"Purchasing power was higher than it was 12 months ago worldwide," he said. "From a tourism point of view, it's good news for people based in Dubai. When they go overseas, their money buys them more." [e-mail]