(Corrects description in first sentence to producer of shiraz, not sauvignon blanc.)
Australia, former penal colony, home to the Great Barrier Reef, and producer of world-class shiraz, has never exactly been synonymous with a high cost of living. Yet because of a strong economy and proximity to the booming Asia Pacific region, many overseas visitors might find it more expensive to slip an extra shrimp—or just about anything else for that matter—on the barbie here than in most other countries around the world. In fact, in a recent survey, six Australian cities placed among the top 30 most expensive in the world, according to global human resources firm ECA International. Just two years ago not a single Australian city ranked in the top 100.
Australia is not alone in becoming more expensive. Singapore, for example, rose to No. 36 in ECA's ranking, from No. 68 last year, on the strength of the Singapore dollar. Caracas, Venezuela, rose from No. 91 to No. 15, a result of rampant inflation.
The city that earns the dubious honor of being the most expensive for holders of U.S. dollars is Tokyo, a rank it also enjoyed last year. How expensive is it? How about $24 for a movie ticket and nearly $11 for a beer (check out the slide show to see how much movie tickets, beer, and other everyday items cost in the world's 30 most expensive cities). Japan dominated the ranking with four of the 10 most expensive—in addition to Tokyo, Nagoya (No. 3), Yokohama (No. 5), and Kobe (No. 9) also made the list.
Due to the weakened U.S. dollar, no U.S. city ranked in the top 30 this year. The country's most expensive city, Manhattan, N.Y., fell to No. 44, from No. 28 in 2010, making it cheaper than Canada's Toronto (No. 37) and Vancouver (No. 42). The U.S.'s second most expensive city, Honolulu, fell to No. 62 from No. 40. (And while they haven't yet, it could be only a matter of time before Beijing (No. 46) and Shanghai (No. 47) crack the top 30.)
Of course, a weak dollar is not necessarily a bad thing. "If the U.S. continues to be relatively cost-effective in an international context, we will see companies pay more attention to whether they are saving money by expanding operations in places like Asia if the cost of living in these places is increasing," says Lee Quane, ECA International's regional director for Asia.
Aussie Dollar Strengthens
ECA International's ranking is based on a survey carried out in more than 400 cities worldwide in March. It compares the costs of living for expatriates maintaining a standard of living on a par with developed countries to guide employers' salary and benefits offers. Items such as food and beverage, basic goods and services, and some entertainment are included, but the survey excludes housing, utilities, car purchases, and school fees, which can vary widely and typically are counted separately in expatriate compensation packages.
A combination of inflation, availability of goods, and exchange rates affect costs. "The strong Australian dollar, which hit parity with the U.S. dollar last November and has strengthened further since, has been a significant factor behind the continued rise of Australian locations up the global ranking," Anna Michielsen, general manager for Australia, New Zealand, and the Pacific for ECA International, said in a release.
The Australian dollar has strengthened by nearly 30 percent against the U.S. dollar since last June. That means an A$100 meal would have cost about $83 last June and now costs about $106. The country is also becoming more expensive than other locations in Asia: ECA points out that goods and services in Sydney were only 3 percent more expensive than in Hong Kong last year and are now 17 percent more costly.
Rising prices, particularly of food and energy, also play a role: Fruit prices in Australia were up 24.9 percent year-on-year in the first quarter and vegetable prices 18.7 percent (due in part to floods); electricity rose 11.7 percent and gasoline 9.3 percent, according to the Australian Bureau of Statistics.Overall consumer prices in the quarter were 3.3 percent above their level a year ago. The bureau forecast in January that weekly living costs for families could increase by as much as A$100 per week this year.
The cost of a quick lunch in a Sydney restaurant is now $27.10, compared with $20.57 in Manhattan; a dozen eggs is $5.60, against $3.65 in Manhattan; and a tube of toothpaste is $5 vs. $3.72 in Manhattan, according to ECA International.
Since 2004, Australia has seen a deterioration in its relative competitiveness doing business globally, says Glenn Mair, director of MMK Consulting in Vancouver and a leader of KPMG's Competitive Alternatives study, which analyzes the costs of doing business in cities around the world.
In 2004, the cost of doing business in Australia was about 8.5 percent lower than in the U.S., according to KPMG's report. By 2010, the gap had shrunk to 2.2 percent, due to Australia's strong dollar and stable economy during the global economic crisis.
"I anticipate some improvement for U.S. [competitiveness] if currency trends stay the same," Mair says. He adds, however, that volatile exchange rates can make this hard to predict.
It is too early for companies to change their strategy based on recent cost changes, and many other considerations are involved, says ECA's Quane. Still, signs are that U.S. cities may be becoming more cost competitive for businesses.
Click here to see the world's most expensive cities.