Crowd Sourced Global Cost Of Living

It's the Weekend again so we thought we'd share something a little more interesting, outside of what was an incredibly dramatic week for the business community and financial markets. You would have heard of crowd sourcing, and the popular taxi-booking company Uber that utilizes such technology to do business. But now, it turns out that the the smart people over at Numbeo have managed to integrate a framework, which incorporates voluntary crowd-sourced inputs by hundreds of thousands of users, to qualitatively determine the how relatively cheap or expensive a country is to live in.

Here at Business of Finance, we have spoken extensively on the direction in which both consumer technology and commercial solutions are headed. Namely, we wrote about the prevalence of Big Data, and how Big Data is inextricably tied up with our daily lives, as long as we are somewhere connected to a digital network or system of intelligence. The scary thing about the march towards Big Data and the indiscriminate aggregate that comes with it, is that most people aren't conscious of it even happening - safe to say, it happens without their permission.

Using the retail industry as a simple but prime example, we opined:

Gone are the days where each customer, or consumer for that matter, was treated individually. Front end systems as we are exposed to on a daily basis connect us with our devices and social accounts; we simply cannot live without these little things that we gleefully take for granted. But if you asked any informatics professionals that either designs or works with back end communications systems, prepared to have your minds numbed by the sheer magnitude and depth of integration these systems possess. Think about it, if Google can rather accurately anticipate what you were searching for in the past few minutes you were on its search engine, and then bring up a thematically related advert on another page you subsequently opened, ponder for a second the additional layers of data collection about your behaviors online.

But back to the topic. Imagine now that millions of end users constantly submitting individual prices of everyday items such as food, transportation fees, clothing and the like. Then imagine that this tidal wave of real-time data gets compiled and stored in a huge digital database where they are analyzed, disaggregated, and are connoted with some underlying logic.

Viola, a worldwide index of prices is now created and at our disposal with a few clicks of a mouse or taps on a screen. This global index of prices compares the cost of living across various places courtesy of those crowd-sourced data points that initially contributed to the data cloud. This was what Numbeo has precisely done.

Now, we take it one step further and depict that information through an eye-friendly infographic, courtesy of Visual Capitalist. A few outliers catch our eye. While Switzerland, Norway, Australia, The UK, and Singapore (our country) may have fallen into your list of expensive countries, countries such as Venezuela and Kuwait might have caught you off guarded on just how expensive they really are to live in - with the former experiencing some 64% hyperinflation at last check.

Want cheap goods and services? Head over to India, Nepal, and Pakistan. With about 1.5 billion people spread between those three countries, labor is cheap and the cost of living is very low. Unfortunately, standards of living are also downright awful.

It's never an "apples to apples" comparison though

What we feel is unique about such crowd-sourced measures of cost of living is that the so called "basket" of goods and services is dynamic. Official measures of prices like GDP deflators and CPIs are widely used in conventional economics because of their relative simplicity, and more crucially variables that are more or less constant. Most would agree such one-size-fits-all price indices do not accurately represent actual environments on the ground because the patterns and compositions of personal consumption differ from person to person.

On top of that, traditional measures prices do not embody constant shifts in consumption trends; adjustments to CPI baskets are only performed after major shifts in consumption patterns, often defeating the original purpose of tracking prices as accurately as possible. They are hence rather primordial in this aspect. Economists still use them anyways.

A good example is Singapore. Singapore is a developed economy that has relatively affordable goods and services (on a PPP basis). However, because of perpetually elevated local property prices (the current cyclical downturn not withstanding) and the exorbitant prices for the right to own road legal automobiles; the city-state almost always ranks within the top 10 most expensive places to live in. While it would require approximately 8 months' disposable income of the average American to fully pay for a Japanese car, it would take at least 5 times as long for the average Singaporean to do the same.

Another point worth noting is that traditional methods of ascertaining costs of living do not factor in purchasing power. Relative high prices coupled with commensurately high purchasing power general equates to palatable costs of living. One should also not confuse cost of living with standard of living. For instance, broad prices in Australia are among the highest in the world, but Australia also has one of the highest minimum wages serving as a partial offset to high absolute prices.

Numbeo has more on this

In Europe, cities in Switzerland and Norway dominate the list of most expensive cities, while the least expensive cities in Europe are Bitola (index 37.88), followed by Chisinau (38.40) and Dnipropetrovsk (40.53). Cities in Europe, out of all continents, have the highest variance in prices. For more details please visit Europe: Cost of Living Index 2014 Mid Year.
In America, due to the fact that the official exchange rate is artificially low, Caracas (index 132.98) became the most expensive city and La Paz (39.24) is the least expensive.
In Africa, the most expensive city is Luanda (index 117.82) distantly followed by Accra (91.19) and Lagos (73.93). The least expensive cities in Africa are Alexandria (35.87), Cairo (37.97) and Tunis (40.19).
In Asia, Changi (107.06), an eastern area in Singapore, is the most expensive, followed by Tokyo (105.87) and Singapore (103.02).
In Oceania, all cities are fairly expensive (for which Numbeo has good dataset). Darwin (127.09) is at the top of the list and Cairns (104.95) at the bottom.
Numbeo also publishes other rankings, such as Quality of Life Rankings. According to its quality of life rankings, cities with the best quality of life in the world are Canberra, Ottawa and Frankfurt. Cities with the worst quality of life are Caracas, Ulaanbaatar and Rio De Janeiro.

So next time you feel like taking a summer vacation abroad, you know where to and where not to go!