Customising exchange ratesCustomising exchange rates
Customising the products and services within the index
In order to be able to construct a cost-of-living index, the prices in base and destination cities have to be put into a common currency (the US dollar) before they can be compared. As a default the index figures are calculated using the exchange rate which prevailed during the week in which the survey was conducted.
In countries where currencies are relatively stable, using the survey-date exchange rate generally produces accurate results. However in some countries, currency devaluations can occur with a suddenness that can produce sizeable changes in cost of living index numbers literally overnight. If the devaluation is massive enough, it is quite possible that an index can abruptly move from a positive position to a negative one.
The EIU Worldwide Cost of Living site therefore enables you to use up-to-date exchange rates to calculate the index. Just click on the Use most recent exchange rate button in the exchange-rate customisation area beneath the index table and then hit the Recalculate button. The system will immediately recompute the indices to reflect the latest exchange rates for each country to the US dollar. Exchange rates are refreshed once a week.
You should bear in mind, however, that extreme exchange-rate volatility may be coupled with equally dramatic changes in price levels. Updating the exchange rates does not have an impact on the published local-currency price data, which are collected twice a year. So to the extent that a devaluation would have an impact on the local-currency price of imported goods, for instance, changing exchange rates is only an approximation of changes in the cost of living.
If you need to use company exchange rates to make the index calculation, then you can do so by clicking on the Enter custom exchange rates against the US dollar button. You can then input your company's exchange rates in the boxes on the right of the screen and hit the Recalculate button to see how the indices are affected.
Please note that if you do choose another exchange rate, be it the latest rates or a customised rate, and then proceed to the salary calculator, your last choice is the one which will be used as a default by the calculator (unless you have previously saved settings on the calculator, in which case these will override your choices on the indices page).
Customising the products and services within the index Some firms take care of utility costs for their overseas employees. Others furnish company cars to expatriates and thus cover most ordinary transportation expenses. For these firms, it is advisable that the utility and/or transportation components of the Cost of Living index be removed or modified in order to better reflect the company's remuneration policy. The compensation policies of individual companies may similarly make it necessary to remove other items used in the index calculation.
For that reason, the EIU Worldwide Cost of Living site allows you to remove entire categories of products, or individual products within a given category. By unchecking the box beside each product and category name in the table of price data, you can remove these products from the calculation. If you then click on the Recalculate button located at the top or bottom of the price data table, the page will reload with the index recalculated to reflect the new components. To reinstate products into the index calculation, just recheck the appropriate box and click on the Recalculate button again. Whatever changes you make, the most recent version of the index will be the one applied by the site's salary calculator.
Remember, however, that the more products you remove from the calculation, the smaller the sample of products becomes upon which your index is being calculated. Smaller samples are prone to higher variation and are less representative of the overall picture. Some products and services, such as housing rents, are not included in the cost-of-living index as a matter of course, because they are not normally defined as part of an expatriate's spendable income. These products do not have a check box beside them.
If you want to save your customised index settings so that they are still in place when you next log in, click on the Save settings button at the foot of the price data table. Click on the Clear settings button to erase your changes.