When and where is the survey conducted?
Why do the prices of some goods and services vary
dramatically from survey to survey?
When
and where is the survey conducted?
The fieldwork for the
Worldwide Cost of Living surveys are carried out by
the Economist Intelligence Unit researchers in all
locations during the first week of March for the
Spring edition of the study and the first week of
September for the Autumn edition. Considerable care is
taken to assess accurately the normal or average
prices international executives and their families can
expect to encounter in the cities surveyed.
Survey prices are
gathered and listed from three types of stores:
supermarket, medium-priced retailers and more
expensive speciality shops. Only outlets where items
of internationally comparable quality are available
for normal sale are visited. While the majority of
cities provides a wide selection of goods and stores
at different price levels, this range narrows down
considerably at several locations. Thus, in some
cities the entire range of prices has to be obtained
at the few stores where goods of internationally
comparable quality are found. Local markets and
bazaars are visited only if the goods available are of
standard quality and if shopping in these areas does
not present any danger to an expatriate executive or
his family.
For certain items, eg
monthly rent and clothing, there are many subjective
factors, questions of personal preferences and taste
at play, as well as a wide variety of choice.
Therefore, the price data given for certain items
should be considered to be merely an indication of the
general level of prices in these categories, although
all data are based on actual prices noted by our
researchers. Furthermore, a few adjustments of the
survey prices have also been made in some cases where
seasonal discount sales and changes in brand names,
package sizes and quality would have unduly distorted
the index results. We have endeavoured, however, to
limit use of this procedure to cases where, in our
judgement, it would not entail misrepresentation of
actual prices.
Why do the prices of some goods and services vary
dramatically from survey to survey?
There are a number of
explanations for the volatility of prices in the
survey. Among the most common are:
* The inflation rate.
Hyperinflation can mean prices increase dramatically
within a city between surveys. Equally deflation means
prices may drop, sometimes significantly. Remember too
that inflation can hit some items much harder than
others, especially in heavily regulated economies
where prices of the most sensitive products and
services are capped.
* Exchange rate /
imports. Many of the goods included in the survey are
imported products. If the local currency changes
dramatically against the currency of the exporting
country, the prices change too. As a result, imported
clothing prices may have escalated by 200-300% while
locally produced staples such as flour or rice may
have increased by just 10%.
* Local shortages.
Drought, flood, failed harvests, local disasters,
panic buying and civil unrest-all affect local
availability and prices. Some shortages are
short-lived, others take longer to recover from.
Availability fluctuates in any city but can be acute
in developing countries. Prices found from one survey
to the next will be more erratic where availability is
a problem (eg Chinese cities).
* Political events.
Governments may decide to ban imports or discourage
locals from buying a certain country's items (for
example, in the mid-1990s a "buy British last"
campaign was instigated in Malaysia). Equally pressure
groups may act to persuade people to boycott products
originating from certain countries.
* New sources of
products and services. New stores opening up can force
prices down as they increase competition (this
happened in Honolulu when the large US discount stores
set up shop). Conversely average prices may "rise"
when improved access to high-quality imports is made
possible by international stores entering new markets
(take Jakarta in the early 1990s, when a well-known
regional store opened in the Indonesian capital with
an impressive range of imported items). This factor
also applies to schools and accommodation --
especially in developing markets as new residential
blocks and associated facilities are built (as seen in
Ho Chi Minh City and Hanoi in the 1990s, for
instance). In a similar phenomenon, new models or
brands entering the global market can push prices
upwards as they become the "must-have" or norm -- for
example, razor prices increased globally when Gillette
introduced the Mach 3.
* Seasonal
fluctuations. The prices of fresh fruit, vegetables
and meat are all subject to seasonal variations. So
too are hire car prices and hotel rates.
* Package size.
Generally the larger the pack size the lower the unit
cost. Correspondents collecting prices survey the most
common local size from one survey to the next.
However, markets change and new sizes are introduced,
with implications for price levels.
* Prices denominated in
foreign currency. In some countries goods or services
may be paid for in a foreign currency. The EIU
converts these prices into local currency at the
exchange rate prevailing at the time of survey. For
example, international school fees are often quoted in
the relevant national currency (eg French school,
French francs). In countries where the currency (and
the economy) is particularly volatile, prices may be
listed in US dollars one year and local currency the
next (eg Moscow through the 1990s).
* Opening up of markets
and deregulation. As governments welcome foreign
investment and open up their markets to international
companies, so the variety and availability of imported
products improves. Deregulation and liberalisation is
another factor affecting price levels: to take an
obvious example, communication costs have fallen as
telecoms industries throughout the world have been
deregulated.
* Taxation. Products
such as alcohol, cigarettes and petrol are subject to
taxation, the levels of which can change quite
dramatically from year to year. |
