Hong Kong, Zurich and Paris are the three most expensive cities in the world in 2020, according to a new survey by the Economist Intelligence Unit.
Zurich and Paris overtook Singapore and Osaka, which slipped down the Worldwide Cost of Living 2020 index rankings from joint-first last year to numbers four and five respectively. Tel Aviv, Israel, moved up two places and ranked alongside Osaka as the world's fifth costliest city.
The 30th edition of the WCOL index shows how the Covid-19 pandemic has changed the cost of living in 133 cities globally in 2020. Factors such as currency volatility, supply chain problems, the impact of taxes and subsidies, and shifts in consumer preferences have all affected the cost of goods.
Local currency exchange-rate movements against the US dollar were responsible for many of the shifts in the rankings, which compares cities with New York as the base city.
Amman, Jordan, is the most expensive city in the Middle East, dropping 10 places to 27th position in the index. Abu Dhabi dropped to 53 this year, down from 43 in 2019, and Dubai also slipped down the rankings to become the 66th most expensive city in the world. Bahrain remained unchanged at 82.
Other Mena cities such as Jeddah and Cairo in Egypt rose to 90 and 98, respectively. They were ranked at 96th and 106th positions last year. Muscat jumped four places to 102 and Kuwait was ranked at 101.
Cities in the Americas, Africa and Eastern Europe have become less expensive since last year and western European cities have become costlier, reflecting a rise in European currencies against the US dollar, according to the survey: How is Covid-19 affecting the prices of consumer goods?
“The biggest price gains in US dollar terms have been in Tehran, whose overall WCOL index has risen by 10 points amid US sanctions, which have impacted the supply of goods. However, although Tehran climbed almost 30 ranks, from 106th place to 79th position, prices in the city remain far below those in the three most expensive cities in the world,” according to the report.
Meanwhile, the biggest price drops took place in Rekyjavik, Iceland, followed by Rio de Janeiro and São Paulo in Brazil, reflecting weak currencies and rising poverty levels, according to the bi-annual index that tracks the prices of 138 goods and services in 130 major cities.
Singapore saw prices decline because the pandemic led to an exodus of foreign workers, leading to a contraction in demand and deflation setting in. Consumer prices also stagnated in Osaka, Japan's third-largest city, the report said.
Tobacco and recreation, among the 10 categories surveyed by the report, experienced the biggest price increases compared with last year, while clothing prices suffered the steepest decline. The biggest driver for the increase in the recreation index was consumer electronics, with the cost of personal computers rising by 18.7 points on average. Osaka is the most expensive city to buy a personal computer, while the cheapest city is to buy one is in Caracas, Venezuela.
“Sales of clothing and footwear plummeted as non-essential stores were shut in most countries during lockdowns. Despite a shift to online retailing, many consumers delayed wardrobe changes. We expect global consumer spending on clothing to fall by more than 9 per cent in 2020 and recovery to be slow over the next few years,” the EIU report said.
Although prices for most consumer goods and services remained fairly flat over the past year in the world’s major cities, the pandemic has impacted categories differently. The prices of essential products have been more resilient than those of non-essential goods, while prices of products that are deemed as impulse purchases have been hit hard as consumers slash spending and increase savings.
While the prices of packaged goods, such as coffee, cheese, rice and orange juice, rose across most cities in the WCOL survey, the average index for the food and grocery category remained flat. However, the index for the shopping basket, which includes a variety of food items and non-alcoholic beverages, fell in 50 of the cities surveyed.
Latin America and Africa accounted for most of the declines, mainly owing to weak local currencies and increasing poverty levels. Caracas, Rio de Janeiro and Lusaka, the capital of Zambia, saw some of the steepest declines in the shopping basket index. All eight Chinese cities included in the survey, however, registered price increases.
“With the global economy unlikely to return to pre-pandemic levels until 2022, spending will remain restricted and prices under downward pressure. Many price-conscious consumers will prioritise spending on staples, home entertainment and faster internet access. Big-ticket items, as well as clothing and out-of-home recreation, will continue to struggle,” the report added.
The EIU's research estimates that although online sales will continue to expand as a segment of total retail sales in 2021, online retailers will struggle to find new sources of revenue and will rely on price competition to boost volumes.
In a separate Cost of Living Survey released by global consultancy Mercer in June, Dubai retained its position as the most expensive city in the Middle East despite dropping to 23 in the rankings from 21 last year, while Abu Dhabi fell to 39 from a ranking of 33.