The Economist: Most expensive and cheapest cities in the world – 12/02/2023 – Market

A small fortune. That’s how much food, alcoholic drinks or clothes can cost in Singapore, the most expensive city in the world to live in, according to a ranking prepared by the British magazine The Economist.

Every year, the publication prepares the list based on what one dollar can buy in each of the cities that are analyzed.

The stronger the local currency, the higher the position of the country’s cities on the list.

This means that the stronger the currency, the more expensive the city will be. And the weaker the currency, the cheaper the place will appear in the table.

In Singapore, one thing that is extremely luxurious is the cost of a certificate needed to buy a car — the cheapest version of this document exceeded US$106,000 (R$521,000) at the beginning of October.

The city introduced the certificate of entitlement system (known by the acronym COE) in 1990 as a measure to alleviate congestion.

Potential car owners must have a COE before they can purchase a vehicle. The validity of the title expires after 10 years.

The rights are sold at biweekly auctions and the government controls the number of certificates for sale, which depends on the number of cars removed from the streets and roads.

Despite being relatively small, Singapore is often ranked as one of the countries with the highest number of millionaires in the world and, therefore, rarely leaves the top spot in the rankings: the city-state has been at the top of the podium in nine of the last 11 years.

The Asian city-state appears tied in this year’s ranking with Zurich. Both locations are considered financial capitals.

Switzerland’s largest city is always expensive, especially in sectors such as food, household goods and entertainment. Zurich came first in 2020 and rarely leaves the top ten positions in the rankings.

“The rise [de Zurique] at the top of the list is mainly due to the fact that the Swiss franc appreciated by more than 10% against the dollar last year”, contextualizes The Economist.

“The reference city for the research is New York, so if a country’s currency strengthens, cities will generally move up in the rankings,” explains the magazine.

The dollar’s recent weakness has caused American cities to fall in the rankings this year. New York, last year’s most expensive city, fell to third place. In this position, it appears next to another Swiss city — Geneva.

For The Economist’s Intelligence Unit, the global cost of living crisis that began in 2022 will still persist in 2023, despite energy prices and supply chain problems having eased.

Even so, inflation remains high around the world: the prices of the 200 products and services that were analyzed by the magazine increased by an average of 7.4% during 2023.

This value is slightly lower than the 8.1% in 2022, but is still well above the average of 2.9% from the previous five years.

The cheapest cities

The cheapest city in the ranking continues to be Damascus, the capital of Syria, despite the average price in local currency having increased by 321% in the year.

The withdrawal of government subsidies and the devaluation of the currency caused import costs to skyrocket there.

In the last positions of the ranking, Tehran (Iran) and Tripoli (Libya) also appear. The inflation rate in Tehran is high, almost 49%, while prices in Tripoli rose just over 5% last year.

The Economist stated that the three cities are particularly cheap on food, as well as household and personal care items.

And Latin America?

In this year’s study, the three cities that rose the most in the ranking are in Latin America. They were Santiago de Querétaro and Aguascalientes, in Mexico, and San José, capital of Costa Rica.

Although this year’s ranking covers 173 of the world’s major cities, the global average was calculated excluding Kiev (Ukraine) and Caracas (Venezuela), which continue to face an above-the-curve hyperinflation cycle.

In Latin America, Mexico City is the most expensive.

“In 2023, the Mexican peso proved to be one of the strongest currencies in emerging markets, thanks to rising interest rates and strong domestic investment,” details the magazine.

“Central banks in much of Latin America were the first to follow the US Federal Reserve’s interest rate increases to support local currencies. As a result, the Mexican peso and Costa Rican colón strengthened,” the publication explains.

Three Brazilian cities appear in The Economist’s ranking: São Paulo, Rio de Janeiro and Manaus. They have an intermediate position in Latin America — they are more expensive than Asunción (Paraguay) and Buenos Aires (Argentina), but cheaper than Quito (Ecuador), Santiago (Chile) and Montevideo (Uruguay).

Buenos Aires, the cheapest in Latin America

Although authorities estimate that inflation in Argentina will end 2023 at 180% per year, the Argentine capital is the cheapest city in Latin America and the Caribbean.

The main reason is the devaluation suffered by the peso.

Currently, anyone who has dollars in the Argentine capital can get much more pesos in exchange than a year ago.

“Argentina has an unsustainable fiscal trajectory, an overvalued exchange rate and a very vulnerable trade balance. Inflation has increased rapidly, while the official Argentine peso has weakened more slowly,” says Mali Chivakul, emerging markets economist at J. Safra Sarasin Bank .

“As a result, the real exchange rate has appreciated sharply since 2022.”

“The IMF’s estimate of the overvaluation of the real exchange rate is between 15% and 20%. And the Argentine parallel market offers an unofficial exchange rate that is up to 150% weaker than the official one”, adds the expert.

Therefore, although the population of the capital suffers intensely from a cycle of inflation, the comparison with the dollar makes Buenos Aires a relatively cheap city compared to the others.