This survey has been carried out under the most extraordinary circumstances as Covid-19 was sweeping across much of the world. The virus has impacted all areas of people’s lives including the cost of living through changes to prices and exchange rates. ECA has prepared this interactive map to help you understand and explain to assignees how their cost of living index has changed during our survey period where they are. This should act as a useful guide when considering whether to amend assignee cost of living allowances as a way to ensure that spending power is maintained.
If you require any assistance or would like additional information or data on the 487 locations included in our survey, or need advice regarding currency fluctuations, please get in touch.
As well as the Covid-19 pandemic continuing to sweep across the world, we have seen other significant changes that will affect cost of living since the March 2020 survey.
In April, oil prices plummeted as Russia and OPEC failed to agree production cuts amid weak demand due to the virus. While petrol prices had already started to fall prior to the March survey, most countries will see even cheaper fuel now. Other deflationary effects of the virus include large drops in demand as consumers stay at home and that is likely to continue to push inflation lower in many countries in the coming months. However, with many businesses around the world having stopped or reduced operations, supply restraints have had an upward impact on prices, notably of many food items, particularly in emerging markets. Another factor that will affect prices is tax. Germany and several other countries have temporarily reduced VAT to boost demand, while on the other hand Saudi Arabia, as part of the country’s attempts to diversify its economy and reduce its dependence on oil revenue, will triple its VAT rate to 15% from 1 July. Other oil producing countries may also come under pressure to boost revenues by increasing taxes or reducing subsidies in the coming months.
There are two factors that affect cost of living indices: prices and exchange rates. While inflation may be subdued in the coming months, we have seen a lot of volatility in the other factor as countries are affected by the virus and lower oil prices. Brazil has been impacted on both fronts and the real is now more than 15% weaker against the euro while Angola has seen a depreciation of more than 20% already since the March 2020 survey. The Uruguayan, Argentinian and Mexican pesos and South African rand have also been hard hit, losing more than 10% of their value against the euro, while the usual suspects of Venezuela and Zimbabwe have seen depreciations of more than 20% (Venezuela saw a drop of more than 60%). While the euro and US dollar have been particularly strong in recent months, the British pound has weakened since the March 2020 survey, falling by more than 5% as the UK has struggled to contain the coronavirus and faces difficult trade negotiations now that it is no longer a member of the EU. Updating the March 2020 cost of living survey purely for the latest exchange rates would lower indices for assignees in all of the countries mentioned that have seen their currencies hit in recent months. This reflects the fact that, while ignoring relative price changes, they would need less of their home currency to buy the same volumes of goods and services.
Whatever the long-term trends in inflation and exchange rates in the coming months, you can keep track of the changes that your assignees are facing by subscribing to ECA’s blog to get the latest news directly to your inbox.
ECA’s interim surveys
We are currently undertaking interim surveys for the following countries due to high inflation expectations: Angola, Argentina, Iran, Lebanon, Sudan, Turkmenistan, Venezuela and Zimbabwe. The results will be available in July 2020.
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ECA publishes cost of living data for 485 cities around the world. It is available from ECA in several forms: as part of a subscription in a calculator which allows you to experiment with different types of index and review the outputs; in reports, providing background detail for specific indices; and as part of the Build-up Calculator for performing balance-sheet calculations. Cost of living data is also pre-populated in ECAEnterprise, our Assignment Management System, and in our Net-to-Net Calculator.