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How are the prices gathered?

When and where is the survey conducted?
Why do some prices vary dramatically from survey to survey?

When and where is the survey conducted?

The fieldwork for the Worldwide Cost of Living surveys are carried out by the Economist Intelligence Unit researchers in all locations during the first week of March for the June edition of the study and the first week of September for the December edition. Considerable care is taken to assess accurately the normal or average prices international executives and their families can expect to encounter in the cities surveyed.

Survey prices are gathered and listed from three types of stores: supermarket, medium-priced retailers and more expensive speciality shops. Only outlets where items of internationally comparable quality are available for normal sale are visited. While the majority of cities provides a wide selection of goods and stores at different price levels, this range narrows down considerably at several locations. Thus, in some cities the entire range of prices has to be obtained at the few stores where goods of internationally comparable quality are found. Local markets and bazaars are visited only if the goods available are of standard quality and if shopping in these areas does not present any danger to an expatriate executive or his family. 

For certain items, eg monthly rent and clothing, there are many subjective factors, questions of personal preferences and taste at play, as well as a wide variety of choice. Therefore, the price data given for certain items should be considered to be merely an indication of the general level of prices in these categories, although all data are based on actual prices noted by our researchers. Furthermore, a few adjustments of the survey prices have also been made in some cases where seasonal discount sales and changes in brand names, package sizes and quality would have unduly distorted the index results. We have endeavoured, however, to limit use of this procedure to cases where, in our judgement, it would not entail misrepresentation of actual prices.

Why do some prices vary dramatically from survey to survey?

There are a number of explanations for the volatility of prices in the survey. Among the most common are:

* Inflation; Hyperinflation can mean prices increase dramatically within a city between surveys. Equally deflation means prices may drop, sometimes significantly. Remember too that inflation can hit some items much harder than others, especially in heavily regulated economies where prices of the most sensitive products and services are capped.

* Exchange rates and imports; Many of the goods included in the survey may be imported products. If the local currency changes dramatically against the currency of the exporting country, the prices change too. As a result, imported clothing prices may have escalated by 200-300% while locally produced staples such as flour or rice may have increased by just 10%. 

* Local shortages; Drought, flood, failed harvests, local disasters, panic buying and civil unrest-all affect local availability and prices. Some shortages are short-lived, others take longer to recover from. Availability fluctuates in any city but can be acute in developing countries. Prices found from one survey to the next will be more erratic where availability is a problem (eg Chinese cities). 

* Legislation; Governments may decide to ban imports or discourage locals from buying a certain country's items (for example, in the mid-1990s a "buy British last" campaign was instigated in Malaysia). Equally pressure groups may act to persuade people to boycott products originating from certain countries. 

 * New sources; New retailers can lower prices as competition increases. Conversely average prices may "rise" high-quality imports become available. This factor also applies to education and accommodation as new schools emerge or residential blocks are completed. Similarly, new models or brands can push prices upwards or downwards. 

* Seasonal fluctuations; The prices of fresh fruit, vegetables and meat are all subject to seasonal variations. So too are hire car prices and hotel rates. 

* Package size; Generally the larger the pack size the lower the unit cost. Correspondents collecting prices survey the most common local size from one survey to the next. However, markets change and new sizes are introduced, with implications for price levels. 

* Prices denominated in foreign currency; In some countries goods or services may be paid for in a foreign currency. The EIU converts these prices into local currency at the exchange rate prevailing at the time of survey. 

* Deregulation; As governments welcome foreign investment and open up their markets to international companies, so the variety and availability of imported products improves. Deregulation and liberalisation is another factor affecting price levels. 

* Taxation; Many goods and services are subject to a sales tax or VAT which can change. This is especially trued of products such as alcohol, cigarettes and petrol.