For the most part, the fluctuations have been the result of important currency fluctuations and less so by price movements.

Price movements

Up until September and October 2008, we observed a substantial increase in prices of basic consumption items and energy in many parts of the world. In the last few months of 2008, there was a sharp reversal of this trend which continued into the early part of 2009. The March 2009 Cost of Living survey revealed a substantial decrease in petrol prices and a stabilisation of prices for many basic items in most of the locations. Inflation as measured by Mercer’s cost of living surveys shows relatively low levels of inflation globally.

The global economic downturn has dramatically changed many real estate markets. Some residential rental markets have been impacted by the credit crisis causing prices to decrease. Markets show signs of weakening as a result of increasing supply. The stock of properties for rent has increased as many new developments are difficult to sell and property owners decide to rent. Another reason for falling prices is rising unemployment and its consequence is decreasing demand.

On the other hand some markets react in the opposite way, because it is more difficult to get mortgage to buy property, people prefer to rent causing rising demand and as a result increasing prices.

Currency movements

The period from March 2008 to March 2009 was characterised by important currency fluctuations; in particular the US dollar strengthened against a number of currencies worldwide while the Euro weakened to the US dollar. The Euro has lost almost 13% against the US dollar and to currencies pegged to the US dollar. During the same period, the British pound has lost more than 26% against the US dollar.

Consequences of the currency movements on the expatriate compensation

Currency movements have a direct impact on the Cost of Living index. To illustrate this point, let us consider a transfer from Washington DC to London. In March 2008 the Cost of Living index Mean to Mean index was 140 (with Washington DC as 100). In March 2009, following the loss in value of the British pound to the US dollar, the Cost of living index dropped to 103 to reflect the increase in purchasing power of the USD in GBP terms (in the timeframe from March 2008 to March 2009, the USD has gained 35.9% against the GBP).

However, the important point is that for the assignee in London, despite this tremendous drop in the COL index, there was NO decrease in the combined spendable income and cost of living allowance in GBP terms. In other words, the same spendable income in USD adjusted by the new lower COL index and converted at the new exchange rate gives the stable host purchasing part as shown in the table below.

Transfer Washington DC to London - illustration of the impact of the Cost of Living index and host purchasing of goods and services

It is important to note that if the employee is not paid in home country currency, but is paid instead in GBP the assignee can suffer an important drop in savings in home country currency terms, normally these loses should be reconciled.

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Key features and benefits

To encourage mobility and to manage your international assignment costs, you need precise information to calculate fair, consistent expatriate compensation packages. With offices in 41 countries and territories, Mercer brings you factual, objective price information from more than 290 cities around the world.

Based on over 200 goods and services, our semi-annual surveys are conducted by professional researchers simultaneously in each of the 290 locations we cover. Carefully chosen vendors reflect only those outlets where your expatriates can buy goods and services of international quality.

• A unique international basket of goods and services reflecting realistic spending habits established through years of extensive expatriate research

• Three distinct cost of living (COL) indices for different expatriate shoppers:

- Mean-to-Mean Index
- Efficient Index
- Convenience Index

• An online Cost of Living Index Calculator that allows you to customise the COL index to your specific need

• Reasonable, realistic indices

• Full price list and survey details

• Immediate estimation of the cost of living allowance (COLA) using our Cost of Living Allowance Calculator

• Current information, with locations extensively surveyed twice a year by professional researchers

• More frequent updates for markets in flux

• Special cities surveyed upon request

• A methodology that lets you determine competitive purchasing power for all your employees, wherever they come from

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