Lies, Damned Lies, and Exchange Rates

According to today’s The Age:

RISING living costs and a surging Australian dollar mean it is now more expensive to live in Melbourne, Sydney, Brisbane and Perth than in London, Vienna, Rome or New York.

A startling claim, I’m sure you’ll agree, but something doesn’t quite ring true for me about this. Why should a “surging Australian dollar” make it more expensive to live in an Australian city? A surging Australian dollar might make it expensive to visit an Australian city, but for anyone living there–earning a salary in the local currency–it should surely make the cost of living cheaper. Apart from anything else due to lower prices for imported goods.

So I downloaded the free report (from here) and of course the introduction makes clear that any conclusions you might draw from the report about the cost of living anywhere outside the US are somewhat flawed:

There are two major reasons why a city’s cost-of-living index will change over time: exchange rate movement and price movement. Since a common currency is required in making a comparative calculation, all local prices are converted into US dollars, which emphasises the role of currency

So, essentially, it’s not a cost of living survey at all. It’s a cost of visiting from the US and paying for things with US dollars survey.

Elsewhere in the introduction, we have this:

Of particular note is the rapid growth in the relative cost of living of Australian cities. Sydney and Melbourne are ranked sixth and seventh respectively and are closely followed by Perth and Brisbane in 13th and 14th place in the ranking. This is the culmination of a remarkable rise in the cost of living in Australian cities over the last decade, a period in which the value of the Australian dollar has moved from around 50 US cents to passing parity with the US dollar earlier this year.

Well yes of course, if you’re going to convert everything back into USD then it’s hardly surprising that if the Aussie goes from being worth 50 US cents to 1.07 USD that would make those Australian cities seem hugely more expensive, relative to the US. It doesn’t mean that those cities are actually that much more expensive for people who live and work there.

The article in The Age concludes with the following:

Melbourne was among the most expensive for a daily business trip at $US760 ($A711) a day – made up of one night’s hotel accommodation, two meals, two taxi trips, a daily newspaper and a drink at a bar. Sydney came in at $US627.

This I find truly baffling. Without subscribing to the detailed city information, I can’t get any more information about how these prices are broken down for Melbourne. All it tells me in the free report is that:

Daily business trip rate consists of one night’s accommodation in a hotel, one two-course meal, one simple meal, two 5km journeys by taxi, one drink in the hotel bar and one international foreign daily newspaper.

Ok, so let’s be generous and assume that the hotel costs you $300 (that’d get you into almost any of the 4/5* major CBD hotels), and let’s allocate $200 to the meals (this is for one person, remember…) The 5km taxi rides shouldn’t cost more than $15 each and even the most expensive hotel bar will probably serve you a drink for under twenty bucks.

Even staying at a top hotel and eating very well, I can’t get much above $550. Where’s the rest of that cost coming from? Unless it costs $150 to buy a “foreign daily newspaper”, it just doesn’t add up.


Of course despite the name this isn’t really a cost of living survey at all, as the report itself makes clear:

The Worldwide Cost of Living survey enables human resources line managers and expatriate executives to compare the cost of living in 140 cities in 93 countries and calculate fair compensation policies for relocating employees.

Which is fine and all, but maybe our newspapers shouldn’t just be blindly reporting on it as an example of how expensive our city is without making that clear…