Exchange Rate and Cost of Living

Published in October 2015

Exchange rate fluctuations have a direct impact on the cost of living indices calculated by EuroCost International. During the last few months, numerous currencies have collapsed against the euro and others have strongly reinforced.
Let's review the main fluctuations occurred during the last year, i.e. between September 2014 and September 2015.

Unpegging of the Swiss franc to the euro

In January 2015, the Swiss National Bank put an end to its three-year policy of capping the Swiss franc against the euro. The franc first soared then stabilized at a level 15% higher than before. In spite of a recent drop, the yearly evolution for the franc against the euro is about 10%.

US dollar and Chinese yuan up

The euro has plunged against the US dollar. The dollar reached record levels against the euro in March and April to finally gain more than 13% yearly between September 2014 and September 2015. This is also true for all dollar-pegged currencies, like the Saudi riyal for example. And in China, the renminbi yuan has gained 10% yearly against the European currency despite a recent drop.
Among non dollar-pegged currencies, the revaluation of the Gambian dalasi is one of the strongest of the year: it gained nearly 30% in May.
Due to currency revaluation, cost of living has increased in all the above-mentioned countries, when compared to Eurozone cities.
Let's now consider those currencies that have devaluated against the euro.

Europe and farther East

Although usually stable, the Norwegian krone has just reached its lowest level since 2008. It has lost 14% yearly in September against the euro. The Turkish lira is also at a historically low level and has lost nearly 15% of its value yearly.
The strongest fluctuations concern Eastern Europe: the Russian ruble, the Ukrainian hryvnia and the Belarusian ruble have all lost more than 30% yearly against the euro. The Kazakhstani tenge has lost 21%. Cost of living for expats has strongly decreased in those countries, in spite of the strong inflation recorded; inflation is indeed not high enough to compensate for the currency devaluation.

Africa also impacted

Luanda, Angola's capital, is no longer the most expensive city in the world as it was at the beginning of the year (see our cost of living ranking 2015). In September, its currency has devaluated by 18% yearly against the euro. This devaluation however looks moderate when compared to the one of the Zambian kwacha that has lost 34% over the year!

Brazil and Colombia collapse

Brazilian and Colombian cities have recently fallen in our cost of living ranking because of the dramatic collapse of their currencies. The decrease has speeded up during the last few months, to reach a yearly decrease pf 31% and 27% respectively for the Brazilian real and the Colombian peso.

Particular cases

Venezuela has sunk in a never-seen-before economic and monetary crisis. The official exchange rate is pegged to the US dollar, but this rate has no economic reality. In order to curb the black market, the government has introduced a new foreign currency exchange system, called Simadi, much lower than the official rate.
Economic conditions are also difficult in South Sudan. As in Venezuela, using the official exchange rate to calculate a cost of living index would turn the country into one of the most expensive in the world. Parallel rate is 4 to 5 times lower than the official one and is subject to very strong daily fluctuations, either up or down. Over the year, it has lost nearly 2/3 of its value.

In a period of monetary unstability, exchange rate fluctuations have a direct impact on expats' purchasing power. Regularly updating cost of living indices is a solution to maintain this purchasing power.