Cost of living
Cost of living measures the expense of a given standard of living.
Cost of living is the cost of maintaining a certain standard of living for an individual or a household. Cost-of-living calculations are used to compare the cost of maintaining a given standard of living across different geographic areas, and differences between locations can be measured using purchasing power parity rates.
- definition
- Cost of maintaining a certain standard of living
- major_components
- Food, housing costs, and energy
- measurement_tool
- Consumer price index (CPI)
- inflation_link
- Increase in CPI over one year is called the inflation rate
- survey_producer
- Economist Intelligence Unit
- base_city_for_comparison
- New York City (index set at 100)
- most_expensive_city_2017
- Singapore
Lore & Background
The cost of living is operationalized through a cost-of-living index, which tracks changes over time. Major components include food, housing, and energy costs, with energy covering heating, light, and cooking. In the United Kingdom, about 18% of an average home's energy costs are for water heating. The consumer price index (CPI) measures prices of goods and services bought by households, and its increase over time indicates a rise in the cost of living.
Reader's Guide
The cost of living is a fundamental economic concept that affects individuals, households, and policy. It is measured through indices like the CPI and surveys such as the Economist Intelligence Unit's semi-annual worldwide cost-of-living survey, which compares over 400 prices across 160 products and services. This survey, carried out for more than 30 years, allows city-to-city comparisons with New York City as the base. In March 2017, Singapore was the most expensive city for the fourth consecutive year. A sharp rise in the cost of living can trigger a cost of living crisis, reducing purchasing power and making previous lifestyles unaffordable. Cost-of-living adjustments (COLAs) are used in employment contracts and pension benefits, often tied to the CPI, to maintain purchasing power. Examples include a 3.2% increase in Social Security benefits and an increase in IRA contribution limits, both in 2024. The concept also links to health, as people facing poverty are less likely to seek medical care, and to housing stress and energy insecurity.
Did You Know?
- In the United Kingdom, about 18% of an average home's energy costs are for water heating.
- The Economist Intelligence Unit's cost-of-living survey has been carried out for more than 30 years.
- In March 2017, Singapore was the most expensive city in the world for the fourth year running.
- A 3.2% increase in Social Security benefits and an increase in IRA contribution limits were implemented in 2024.
Frequently Asked Questions
What is Cost of living?
Cost of living is the total expense needed to sustain a particular standard of living for an individual or a household. It serves as the baseline figure economists use to gauge how much money someone actually needs to get by.
What are Cost of living's major components?
The three biggest pieces are food, housing costs, and energy. These categories account for most of the variation you'll see between different cities or countries.
How does Cost of living connect to inflation?
The Consumer Price Index (CPI) is the standard tool for tracking cost-of-living changes over time. When the CPI rises by a certain percentage over a one-year period, that increase is what we call the inflation rate.
Who produces Cost of living comparisons and what's the base city?
The Economist Intelligence Unit is the well-known survey producer that ranks cities by their cost of living. New York City serves as the reference point, with its index value fixed at 100 against which all other locations are compared.
Why is Cost of living important?
It lets people and policymakers compare the real purchasing power of a given standard of living across different geographic areas. Differences between locations are often expressed through purchasing power parity rates, making cross-border comparisons meaningful.
More in Economic Concepts & Models 1-24
Elsewhere in the Economic Concepts & Models universe
Spotted an error? Know more?
This is a living reference — every entry is fact-audited, and reader corrections feed straight into our audit queue. Suggest an edit · See this site's audit record