Sydney, Melbourne among world’s most expensive cities as high dollar pumps up prices

The rising Australian dollar has been blamed for placing Melbourne, Sydney, Perth and Brisbane among some of the most expensive cities in the world, according to a new survey conducted by The Economist Intelligence Unit.

Results of the survey come as much of the recent political debate has focused on the cost of day-to-day living, especially as the government prepares to unveil its carbon tax scheme this Sunday.

According to the new survey Tokyo tops the list followed by Oslo in Norway, Osaka Kobe in Japan then Paris and Zurich.

Sydney and Melbourne claimed sixth and seventh spots – both up two rankings since last year – while Perth and Brisbane were placed 13 and 14.

Report author Jon Copestake said the rise of the Australian cities is of particular note and he puts the blame squarely on the rising Australian dollar – now at $US1.07c.

“This is the culmination of a remarkable rise in the cost of living in Australian cities over the past decade, a period in which the value of the Australian dollar has moved from around 50 US cents to passing parity with the US dollar earlier this year,” he says.

The result is a massive increase in cost of living during the past two years, with the survey pointing out that two years ago Sydney was ranked 32 and Melbourne 38, while 10 years ago they were ranked 71 and 80, with Perth and Brisbane 91 and 93.

Copestake said the result is due to the impact of rising domestic prices for goods and services, which have risen alongside oil and commodity prices “compounded by the strength of the Australian dollar”.

The Economist report is compiled by comparing 400 prices across 160 products and services in 93 countries with many of the products day-to-day items such as food and toiletries.

Copestake warned that while Australia has remained an attractive tourism destination “whether the spiralling relative cost of living will dampen this appeal remains to be seen”.

The survey highlights the rising cost of living for many (and the fact that costs of a business trip to Australia are among the most expensive in the world) and some say the rising dollar is a benefit for many.

“I think the rising dollar is actually beneficial for the average Australian household,” says CommSec economist Savanth Sebastian. “It makes imported goods cheaper, it makes buying a car cheaper and a number of other items cheaper as well.”

The rising dollar has caused panic in the retail sector, with recent figures from Macquarie Equities showing that 20% of shoppers are doing half their buying online as price discrepancies between items sold in the US compared to domestic retailers are striking.

“The higher dollar makes imported goods cheaper, keeping import inflation lower, which actually does part of the RBA’s job for them,” Sebastian says.

“The impact on the dollar is really around foreign investment as it makes things more expensive for buyers – particularly property.

“Of course exports don’t do well during this period at all. No doubt if you’re looking around the globe and at US dollar-dominated assets and the value of those assets Australia is looking quite expensive.”

Sebastian said the biggest impact was in property as foreign investors back away to make room for domestic buyers.

“There has been a lack of supply in housing and the dollar will discourage foreign investors so there may be less competition. In the existing home sales market you will continue to see less demand.”