Published June 26, 2006
The Russian capital moved up three spots from a year ago thanks to a recent property boom, according to a survey released Monday, while the Japanese capital slipped to third place due to the weaker yen.
South Korea's Seoul ranked second on the list, up from fifth last year.
The survey by Mercer Human Resource Consulting ranked 144 cities around the world, measuring the comparative cost of more than 200 items such as housing, transportation and food. The survey is aimed at helping multinational employers determine compensation for their expatriate workers.
With cities around the world getting increasingly expensive for expatriates -- notably cities in developing countries -- employers may need to re-examine the way they provide compensation and benefits for their workers, said Rebecca Powers, a senior consultant at Mercer.
"As we see more and more movement into these emerging markets, a lot of those programs need to be looked at," Powers said.
Overall, foreign exchange rate fluctuations were behind the majority of the changes in ranking, but in Moscow's case, costs were buoyed by the surging price for large living accommodations. Prices for big houses rose some 50 percent over the past year, driven in large part by soaring demand from expats, Powers said.
"It reflects a much bigger demand for palatable housing for someone coming into Russia trying to replicate the housing they had at home," she said.
After Moscow, Europe's priciest cities were London, ranked No. 5 overall, and Geneva, ranked No. 7. European cities tended to fall in the rankings this year because of a weakening euro.
New York -- ranked No. 10, up three spots from last year -- remains North America's costliest city, followed by Los Angeles and San Francisco.
Chinese cities -- including Hong Kong at No. 4, Beijing at No. 14, and Shanghai at No. 20 -- climbed the list due mostly to the yuan's strength after being de-pegged from the U.S. dollar.
With the Brazilian real rising about 20 percent versus the U.S. dollar over the past year, Brazilian cities Sao Paolo and Rio de Janeiro surged to No. 34 and No. 40 from No. 119 and No. 124, respectively.
"What's so interesting now is that we do see, year to year, more fluctuation in these rankings than we used to," Powers said. "The investment and flow of capital and businesses into developing countries has made them a bit more expensive."
Companies will likely have to pay expatriate employees more to retain them, and may want to consider working harder to hire staff locally in the long-term to help alleviate relocation costs, Powers said.
The least-expensive city surveyed was Asuncion in Paraguay.