In case you’re wondering about where it will be cheapest to holiday this year, I give you this little piece of excellence from ourworldindata.org. It shows you GDP (gross domestic product) adjusted for local purchasing power over time. The data visualisation uses the US as its point of comparison – and basically, the bluer the country, the more bang you’d get for your forex buck*. And the redder the country, the more expensive it will be to visit.
*Just a quick note to all my inbox subscribers – I have no idea if this is going to embed in an email (which is why I’m trying it on a public holiday). If all else fails, you can find the data on rollingalpha.com, or at ourworldindata.org.
The Purchasing Power Problem
The problem is: not everywhere in the world is equal. The cost of living is different from country to country (and from city to city!). And it’s not a problem of ‘exchange rates’. It’s mainly caused by local factors.
For example, lots of rich people live in London. Because they want to live in London, and because they are rich, their buying power drives up the cost of housing and the cost of rent. This then means that the restaurants and shops in London have to compete with housing rentals for space, so they also have to pay higher rentals. So their prices also have to go up in order to remain in situ and in business. Fortunately, most of their customers will be rich, because of the high housing prices and/or rentals. So they can get away with higher pricing. And before you know it, the cost of living in London unusually high.
I’ve written about this before, so check out these posts:
So if you’re planning your summer holiday, don’t be afraid to look East.
PS: in case that visualisation isn’t working so well, here’s a picture for 2015:
Rolling Alpha posts opinions on finance, economics, and sometimes stuff that is only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.
