The Cost of Living Index (COLI) is one of the most important and reliable economic indicators used to compare how expensive daily life is across different countries or cities worldwide. It measures the relative cost of essential expenses such as housing, food, transportation, healthcare, and utilities, everything that shapes everyday living standards.
In today's age of global mobility, remote work, and international relocation, understanding the Cost of Living Index is vital for individuals, families, employers, and policymakers. It helps people evaluate affordability, compare destinations, and plan financially for relocation or remote employment.
This article explains what the Cost of Living Index means, how it's calculated using standardized market baskets and weighted categories, clarifies that major providers like Wise use an internal benchmark rather than anchoring to a single country such as the U.S., and finally presents the 2025 Global Cost of Living Ranking for 100 countries.
What Is the Cost of Living Index?
The Cost of Living Index (COLI) measures how expensive it is to live in one location compared to another. It represents the relative price level of goods, services, rent, and other essentials, providing a clear picture of how far your money goes across different regions.
Rather than tracking changes over time (like inflation), the COLI compares price differences between locations at a single point in time. It helps answer a simple but vital question:
The index is relative, not absolute. A baseline location (such as New York City or an internal benchmark) is assigned an index value of 100, and other locations are compared to it:
- Index = 100: Costs are equal to the baseline
- Index = 80: Costs are 20% lower than the baseline
- Index = 120: Costs are 20% higher than the baseline
A higher index indicates that a location is more expensive, while a lower index means it's more affordable. Importantly, this index measures purchasing power and relative affordability, not income levels, quality of life, or happiness.
The COLI allows policymakers, employers, remote workers, and expatriates to understand how living expenses differ worldwide — from housing and groceries to healthcare and transportation. It's a key tool for comparing real-world affordability between countries or cities.
How the Cost of Living Index Is Calculated
Most global COLI rankings — including those published by Wise, Numbeo, the Economist Intelligence Unit (EIU), and C2ER — follow a similar structured methodology based on economic research and consumer expenditure data.
Define the Standard Basket of Goods and Services
Researchers create a representative "market basket" of goods and services that reflects typical consumer spending. This usually includes:
- Housing and rent
- Utilities (electricity, water, internet)
- Groceries and dining
- Transportation
- Healthcare
- Education
- Clothing and recreation
- Leisure and entertainment
This basket represents what an average household or professional might consume in daily life.
Assign Weights to Each Category
Each category is assigned a weight based on its share of average household spending. For example:
- Housing: 30–40%
- Food and groceries: 10–15%
- Transportation: 10–15%
- Other categories (healthcare, education, entertainment, etc.): remaining percentage
These weights ensure that the index reflects realistic consumption behavior rather than raw price differences.
Collect Price Data Across Countries
Researchers or data partners collect local prices for every item in the basket using consistent methods — same item type, quality, and urban context. Examples include:
- Rent for a two-bedroom apartment in the city center
- Price of 1 kg of rice or loaf of bread
- Monthly cost of public transportation
- Average utility bills
This ensures that comparisons between countries are accurate and fair.
Calculate the Cost of the Basket
For each country, the total basket cost is computed by multiplying item prices by their weights and summing them:
Where:
i = Country
j = Item in the basket
This gives a total cost representing typical living expenses in that country.
Choose a Benchmark and Compute the Index
A benchmark country or internal baseline is chosen and assigned an index of 100. Each country's COLI is then calculated as:
If a country's index is 120, it means it is 20% more expensive than the benchmark; if it's 80, it's 20% cheaper.
Platforms like Wise use an internal benchmark (not necessarily the U.S.) to provide a more balanced global comparison.
Adjust for Purchasing Power and Currency Differences
Because currencies fluctuate, prices are adjusted using Purchasing Power Parity (PPP) or stable exchange rates to reflect true purchasing capacity, not temporary exchange rate shifts.
This ensures that the comparison captures real affordability, not just nominal price differences.
Normalize, Handle Outliers, and Finalize
Extreme data points (outliers) are smoothed or removed to prevent distortion.
Additional adjustments may be made for factors like housing quality, city size, or local amenities.
Finally, the index is normalized so that all countries are scaled relative to the benchmark value.
Why the Cost of Living Index Is Important
The Cost of Living Index (COLI) plays a critical role in global decision-making — from personal relocation choices to government wage policies. It provides an objective measure of how expensive life is in different countries, allowing individuals, employers, and policymakers to make informed economic decisions.
For Individuals and Families
For people planning to move abroad or manage their household budgets, the Cost of Living Index is an essential tool. It shows how far your income will stretch in another country and helps estimate expenses such as rent, groceries, utilities, and transportation.
For example, someone earning £3,000 in the UK might need £5,000 in Switzerland to enjoy a similar standard of living. By consulting the index, families can make smarter choices about relocation, savings, and lifestyle adjustments.
For Employers and Global Businesses
Companies operating internationally use COLI data to adjust salaries for employees working in different regions. It ensures fair compensation, maintains employee satisfaction, and supports equitable global payroll structures.
Many organizations calculate Cost-of-Living Allowances (COLA) using these indices to prevent overpaying or underpaying workers in high- or low-cost regions. For global HR teams, this tool helps balance talent mobility, pay equity, and budgeting across countries.
For Policymakers and Economists
Governments and economists use the Cost of Living Index to:
- Set minimum wages based on affordability
- Track inflation and purchasing power
- Identify regions that require housing subsidies or social support
By analysing COLI trends, policymakers can monitor economic inequality and regional affordability gaps, ensuring fair access to essentials across income groups.
For Digital Nomads and Expatriates
With remote work now mainstream, the Cost of Living Index empowers professionals to live and work anywhere in the world while optimizing their income. Digital nomads and expats use it to choose destinations that balance affordability, quality of life, infrastructure, and safety.
For example, if the UK's index is 62.0 and the UAE's is 55.8, it means living in Dubai is roughly 10% cheaper than living in London — assuming similar lifestyle standards.
How to Use the Cost of Living Index
The Cost of Living Index (COLI) is not just a number — it's a strategic tool for understanding, planning, and comparing the real-world cost of living across different locations. Whether you're moving abroad, setting global salaries, or analysing economic data, using the index correctly can help you make data-driven financial and lifestyle decisions.
- Compare Locations Directly
The index allows you to evaluate differences between two cities or countries instantly. For example, if the UK's cost-of-living index is 62.0 and the UAE's is 55.8, it means living in Dubai is roughly 10% cheaper than London while maintaining a similar lifestyle standard. - Estimate Relocation Budgets
Before moving abroad, use COLI to forecast monthly expenses such as rent, utilities, food, and transportation. This helps individuals, families, and expatriates prepare realistic budgets for their new destination — preventing financial surprises after relocation. - Adjust Salaries and Stipends
For employers and HR teams, COLI is an essential tool for salary benchmarking. It ensures employees working in different regions receive fair compensation that reflects local living costs, maintaining equity and satisfaction across global teams. This principle also applies to remote workers, freelancers, and contractors negotiating pay based on geographic affordability. - Track Affordability and Inflation Trends
The Cost of Living Index is updated periodically to reflect price movements, exchange rate shifts, and inflation trends. By monitoring these changes, both individuals and organisations can understand how purchasing power evolves over time and identify early signs of economic pressure or depreciation. - Budgeting and Financial Forecasting
Beyond relocation, the index serves as a practical budgeting guide. Individuals can estimate how everyday expenses—like groceries, rent, and healthcare—might change between countries or cities. It's also valuable for students, retirees, and digital nomads planning long-term stays abroad. - Salary Negotiation and Global Pay Alignment
If you're accepting an international role or remote position, you can use COLI data to negotiate salary adjustments that maintain your standard of living. Employers likewise use it to set cost-of-living allowances (COLA) and design equitable global pay structures. - Economic and Policy Research
Researchers and economists often combine COLI with GDP per capita, CPI (Consumer Price Index), and wage data to analyse:- Regional affordability
- Purchasing power disparities
- Income inequality
- Inflation trends
Using the Index Smartly
To make the most of COLI data, treat it as a decision-making framework rather than a static number:
- Relocation Planning: Compare your home country's index to your destination before moving.
- Salary Benchmarking: Adjust pay scales and benefits according to regional differences.
- Personal Budgeting: Estimate spending categories (housing, utilities, transport) before you relocate.
- Policy & Research Applications: Integrate COLI insights into macroeconomic or wage studies.
Interpreting the Cost of Living Index
- Higher Index: Indicates a higher cost of living (more expensive).
- Lower Index: Indicates a lower cost of living (more affordable).
- Index = 100: Represents the baseline standard.
Example: If a city scores 120, it's roughly 20% more expensive than the benchmark; if it scores 80, it's 20% cheaper.
While the COLI provides a clear snapshot of affordability, it doesn't measure income levels, economic strength, or quality of life — it strictly shows how much money is needed to maintain the same lifestyle in different locations.
Limitations and Caveats
While powerful, the Cost of Living Index has a few inherent limitations:
Averages, not personal habits
It assumes a typical lifestyle that may not reflect individual spending patterns.
Regional disparities
National averages can be misleading — living in London or New York City costs far more than smaller towns or rural areas.
Currency and inflation effects
Rapid exchange rate changes or inflation spikes can quickly make published indices outdated.
Different methodologies
Some indices cater specifically to expats, including international school fees or imported goods, while others represent local consumer patterns.
Always check the methodology of the index you're using and, if possible, research city-level data for more accurate comparisons.
Global Trends Shaping the Cost of Living in 2025
Several global factors are currently influencing cost-of-living differences:
Inflation
Rising prices for food, housing, and utilities, especially in Europe and North America.
Housing shortages
Cities like London, Sydney, and New York face persistently high rents due to limited housing supply.
Energy costs
Volatile energy prices are affecting both utilities and transportation.
Technology and remote work
Professionals increasingly relocate to more affordable regions without changing jobs.
Currency strength
Exchange rate shifts make living abroad cheaper or more expensive, depending on your base currency.
Global Cost of Living Rankings (2025)
Top 10 Most Expensive Countries (2025)
- Switzerland — 101.1
- Bahamas — 85.0
- Iceland — 83.0
- Singapore — 76.7
- Barbados — 76.6
- Norway — 76.0
- Denmark — 72.3
- Hong Kong (SAR China) — 70.8
- United States — 70.4
- Australia — 70.2
These countries combine high living standards, strong economies and premium services — but they also come with higher housing, transport and dining costs.
Most Affordable Countries (Examples)
- Pakistan
- Libya
- Egypt
- India
- Bangladesh
In these countries, the Cost of Living Index is significantly lower, meaning your money typically goes further compared with high-ranked countries.
Full 2025 Global Ranking — Top 100 Countries
| Rank | Country | Index |
|---|---|---|
| 1 | Switzerland | 101.1 |
| 2 | Bahamas | 85.0 |
| 3 | Iceland | 83.0 |
| 4 | Singapore | 76.7 |
| 5 | Barbados | 76.6 |
| 6 | Norway | 76.0 |
| 7 | Denmark | 72.3 |
| 8 | Hong Kong (SAR China) | 70.8 |
| 9 | United States | 70.4 |
| 10 | Australia | 70.2 |
| 11 | Austria | 65.1 |
| 12 | Canada | 64.8 |
| 13 | New Zealand | 64.6 |
| 14 | Ireland | 64.4 |
| 15 | France | 63.7 |
| 16 | Puerto Rico | 63.3 |
| 17 | Finland | 63.2 |
| 18 | Netherlands | 63.1 |
| 19 | Israel | 62.7 |
| 20 | Luxembourg | 62.4 |
| 21 | Germany | 62.2 |
| 22 | United Kingdom | 62.0 |
| 23 | Belgium | 61.1 |
| 24 | South Korea | 60.1 |
| 25 | Sweden | 59.3 |
| 26 | Italy | 56.2 |
| 27 | United Arab Emirates | 55.8 |
| 28 | Cyprus | 54.7 |
| 29 | Uruguay | 54.1 |
| 30 | Jamaica | 53.9 |
| 31 | Malta | 52.8 |
| 32 | Costa Rica | 52.3 |
| 33 | Bahrain | 52.3 |
| 34 | Greece | 52.0 |
| 35 | Estonia | 52.0 |
| 36 | Qatar | 51.3 |
| 37 | Slovenia | 49.9 |
| 38 | Latvia | 49.1 |
| 39 | Spain | 47.3 |
| 40 | Lithuania | 47.1 |
| 41 | Slovakia | 46.7 |
| 42 | Czech Republic | 46.6 |
| 43 | Panama | 46.4 |
| 44 | Japan | 46.1 |
| 45 | Croatia | 45.5 |
| 46 | Saudi Arabia | 45.3 |
| 47 | Portugal | 45.1 |
| 48 | Oman | 42.4 |
| 49 | Kuwait | 42.1 |
| 50 | Albania | 42.1 |
| 51 | Hungary | 41.7 |
| 52 | Poland | 40.8 |
| 53 | Mexico | 40.2 |
| 54 | El Salvador | 39.5 |
| 55 | Montenegro | 39.4 |
| 56 | Chile | 39.1 |
| 57 | Guatemala | 38.8 |
| 58 | Bulgaria | 38.3 |
| 59 | Serbia | 37.7 |
| 60 | Romania | 37.5 |
| 61 | Turkey | 37.4 |
| 62 | Cambodia | 37.3 |
| 63 | Fiji | 35.4 |
| 64 | Sri Lanka | 34.6 |
| 65 | South Africa | 34.5 |
| 66 | Thailand | 34.1 |
| 67 | Georgia | 33.4 |
| 68 | Ecuador | 32.6 |
| 69 | China | 31.7 |
| 70 | Azerbaijan | 31.2 |
| 71 | Philippines | 30.9 |
| 72 | Vietnam | 30.6 |
| 73 | Indonesia | 30.2 |
| 74 | Morocco | 30.1 |
| 75 | Ukraine | 29.9 |
| 76 | India | 29.3 |
| 77 | Bosnia & Herzegovina | 29.2 |
| 78 | Tunisia | 28.9 |
| 79 | Kenya | 28.6 |
| 80 | Peru | 28.2 |
| 81 | Armenia | 27.9 |
| 82 | Brazil | 27.7 |
| 83 | North Macedonia | 27.4 |
| 84 | Colombia | 27.2 |
| 85 | Egypt | 26.9 |
| 86 | Jordan | 26.7 |
| 87 | Argentina | 26.4 |
| 88 | Paraguay | 26.3 |
| 89 | Nigeria | 26.1 |
| 90 | Ghana | 25.8 |
| 91 | Pakistan | 25.7 |
| 92 | Nepal | 25.6 |
| 93 | Algeria | 25.4 |
| 94 | Bangladesh | 25.3 |
| 95 | Bolivia | 25.0 |
| 96 | Uganda | 24.9 |
| 97 | Tanzania | 24.6 |
| 98 | Ethiopia | 24.4 |
| 99 | Iran | 24.2 |
| 100 | Venezuela | 23.9 |