Comparing Costs of Living across World Cities

Abstract

This paper compares costs of living across world cities. The International Comparison Program (ICP) reports price levels across world economies in its calculation of purchasing power parity through an extensive scale of price data collection and rigorous methodology. While the price levels are reported only at the national level, some modification makes it possible to compare the cost of living across a group of world cities. In addition, various agencies report costs of living rankings for world cities on a regular basis, and some of them, such as the Economist Intelligence Unit (EIU)’s World Cost of Living Survey, systematically collect a wide variety of items from a host of cities, even covering low-income countries. This article's application of the ICP method to the EIU price data yields an overall reasonable result: richer cities have higher price levels, and the rankings of cities based on their price levels are similar when using the ICP and EIU data. Nevertheless, the results based on the EIU data differ from the ICP data relatively widely in some nonfood items and among cities with low price levels. This result highlights important issues regarding the data and methodology required to measure costs of living for development purposes.