These are the world's most expensive, and cheapest, cities to live in according to the EIU

Half of the world's ten most expensive cities to live in are in Asia, with Singapore and Hong Kong firmly defending their top two spots from a year ago, according to a new survey from the Economist Intelligence Unit (EIU).

The findings were released Tuesday in a report titled "Worldwide Cost of Living 2017," which ranked the world's major cities by comparing more than 400 individual prices across 160 products and services including food, drink, clothing, household supplies and personal care items among others.




The Japanese cities of Tokyo and Osaka re-entered the top 10 rank, climbing seven and nine places respectively over the year to rank 4th and 5th, owing to a sustained recovery in the yen. The rest of the top ten comprised four cities in Western Europe and New York as the lone North American representative thanks to a relatively weak greenback last year.

Some of the cheapest cities to live in were also in Asia — particularly in South Asia — but the report noted many of these places had "well-documented economic, political, security and infrastructural challenges."

The biggest movers up the ranking in the last 12 months were mostly from the emerging markets — Sao Paulo and Rio de Janeiro climbed up 29 and 27 places respectively to rank 78th and 86th thanks to a recovery in the local currency and double-digit inflation. As well, Antipodean cities such as Brisbane, Adelaide, and Auckland clocked in higher.

Conversely Manchester and London dropped 25 and 18 places respectively mostly due to last year's plunge in the British pound following the Brexit vote.



Exchange rates a key driver of cost

With emerging markets dominating both ends of the rankings, Simon Baptist, regional director for Asia at the EIU, pointed to three key drivers of cost of living in these countries: the exchange rate, government policies and commodity prices.

"We're expecting, over the course of this year, the rupee, the yen and the euro to all have a fairly good year," he told CNBC. "That's going to up the cost of living in those cities. On the other hand, currencies we think are going to struggle — including those in Brazil, South Africa, (South) Korea, Indonesia and China — those places we expect the cost of living is going to come down."

With a lot of prices in emerging markets regulated by governments, policies such as taxes and social norms tend to have a bigger impact on prices, according to Baptist.


For example in India, inflation dropped sharply after the government decided to ban and replace large-denominated notes last November that saw a lot of planned spending get postponed owing to a cash crunch. As the effects of demonetization ebbs, Baptist expects overall inflation to pick up, but the government's infrastructure spending could help keep food prices down.

"Something that could make a big difference in India actually is the improvement that seem not be happening in food chain management — so say better refrigeration, improvement in electricity supply and refrigerated transport mean food prices should, over the next few years, become a bit less sensitive to fluctuations in the weather," he said, adding it could potentially reduce the level of food price spikes.

Baptist added low service sector wages make non-tradable goods in India really cheap compared to other places.