In this piece, we will take a look at the 25 countries with the highest cost of living in the world in 2023. For more countries, head on over to 10 Countries With The Highest Cost of Living In The World in 2023.
2022 turned out to be a historic year for all the wrong reasons. The brutal Russian invasion of Ukraine coupled with the after effects of massive stimulus spending to curtail the economic blowback from the coronavirus pandemic made their mark in the form of record high inflation. For the Western and developed world, Europe was the hardest hit region, as years of reliance on cheap Russian gas upended as the invasion began and countries decided to limit their Russian energy dependence. The U.S. wasn’t far behind, and it was the American central bank’s efforts to limit the inflationary beast that ended up making 2022 even more painful for the developing world.
This is due to the fact that the primary tool that the Federal Reserve has in its fight against inflation is the benchmark interest rate. This is the rate at which the central bank provides liquidity to the financial sector, and this rate influences the banking systems’ charges for their loans. In essence, banks borrow at the Fed’s rate and lend at a rate that is a certain basis point higher – resulting in a spread that helps them make profits. So, the higher the benchmark rate goes, the higher rates banks charge their customers which then ends up increasing the cost of raising capital At the same time, developing countries that had relied on an era of low interest rates to issue their own bonds were priced out of the global debt markets since a higher Fed benchmark rate also influences the interest rates offered by U.S. bonds and global investors prefer the stability of the U.S. government that is almost assured to keep making coupon payments as opposed to riskier developing countries that might default on their debt obligations despite promising double digit interest rate payments to bondholders.
But how does the high American interest rate affect inflation in a third world developing country? To understand this, a history lesson is needed. The oil crisis of 1973 was the last time in history that the Federal Reserve resorted to an aggressive interest rate hiking cycle as was witnessed last year. However, at the same time, the price of oil was fixed by the world’s largest oil exporter, Saudi Arabia, to the U.S. dollar. This era of turmoil in global politics saw America’s excessive support for Israel in the Yom Kippur war anger Saudi Arab’s King Faisal – who suspended all supplies to the U.S. Tensions between the U.S. and what is now one of its most important Middle Eastern allies thawed in 1974 when a secretive mission by President Nixon’s Treasury Secretary saw Saudi Arabia agree to sell its oil in the U.S. dollar in return for security guarantees provided by the Americans.
What’s more, the agreement saw King Faisal insist that the U.S. keep its details secret, and it was only in 2016 that a Freedom of Information Act revealed that Saudi Arabia had agreed to send excessive petrodollars back into the U.S., which ended up making it one of the U.S.’ largest creditors through having amassed $117 billion in Treasury securities. Analysts also speculate that Saudi Arabia might have used offshore financial centers to buy more American securities, in order to hide the true origins of the money. The treasure trove of Treasury securities has also seen Saudi Arabia threaten the U.S. government that it would start selling them if Congress passed a law to make it liable for the devastating September 11 attacks.
Since then, oil is priced in dollars and this is the primary reason high interest rates in the U.S. end up causing inflation in the developing world. To buy oil, countries have to rely on their dollar foreign exchange reserves, and these reserves are strained when high rates cause a capital flight. When the reserves are drained, the local currency depreciates against the dollar, which causes gas prices to increase. This then ends up plunging the economy into the territory of high prices.
Safe to say, the events of 2022, particularly in macroeconomic terms, have caused a massive paradigm shift that bears similarities to the 1970s. But what lies in the future? Well, a report from the Organization for Economic Cooperation and Development (OECD) believes that American gross domestic product (GDP) growth will slow down to 1.5% this year and to 0.9% next year. In the Eurozone, growth is expected to slow down to 0.8% this year and pick up to 1.5% in 2024. For our hottest topic, inflation, the OECD believes that headline inflation will decline to 4.5% in G20 countries in 2024 and core inflation will average at 4% this year and 2.5% next year.
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Our Methodology
To identify the countries with the highest cost of living in 2023, we decided to dig up the latest estimates for the global cost of living index for 2023. However, this yielded results from three separate sources (1,2,3), with each using a different base region, such as the U.S. or the Czech Republic. To remove this discrepancy and ensure accuracy, we collected the top fifty countries from each list, then averaged the results for each country and ranked them by the new cost of living index for 2023. From these results, the top 25 countries with the highest cost of living in 2023 are listed below. You can also check out 15 Countries with the Highest Inflation Rates.
Countries With The Highest Cost of Living In The World in 2023
25. French Republic
Insider Monkey’s Cost of Living Score: 98
The French Republic, commonly known as France, is a European country that is a global power player in modern day politics. These days, it is currently experiencing riots in response to the government’s pension policies.
24. Federal Republic of Germany
Insider Monkey’s Cost of Living Score: 99
The Federal Republic of Germany is Europe’s largest economy and one which has seen significant inflation recently due to its extreme reliance on Russian gas for industrial production.
23. Kingdom of Belgium
Insider Monkey’s Cost of Living Score: 99
The Kingdom of Belgium, simply known as Belgium, is a European country with a $723 billion GDP and a high per capita income of $62,065.
22. Japan
Insider Monkey’s Cost of Living Score: 100
Japan is an Asian country that is the world’s third largest GDP and one of the richest countries on Earth, despite being relatively small in size.
21. Kingdom of Sweden
Insider Monkey’s Cost of Living Score: 101
The Kingdom of Sweden is another European country. It has a $684 billion GDP and a GDP per capita of $63,877.
20. Canada
Insider Monkey’s Cost of Living Score: 105
Canada is a North American country that is one of the few developed countries in the world that relies on raw materials and natural resources to earn its foreign exchange.
19. Finland
Insider Monkey’s Cost of Living Score: 105
Finland is a European country that has a $321 billion GDP. It has a diversified economy that relies on manufactured goods and raw materials to earn foreign exchange.
18. Barbados
Insider Monkey’s Cost of Living Score: 105
Barbados is an Island country in the Caribbean Sea. It is one of the smallest countries in the world and has a $5 billion GDP.
17. Iceland
Insider Monkey’s Cost of Living Score: 106
Iceland is a Nordic European island nation that is one of the least populated countries in Europe due to its location and weather. It has a $24.8 billion GDP.
16. United Kingdom of Great Britain and Northern Ireland
Insider Monkey’s Cost of Living Score: 106
The United Kingdom of Great Britain and Northern Ireland is one of the most prosperous nations in the world and a great power in global politics.
15. Netherlands
Insider Monkey’s Cost of Living Score: 108
The Netherlands is a developed European country with a $1.2 trillion GDP and a high GDP per capita of $68,572.
14. New Zealand
Insider Monkey’s Cost of Living Score: 112
New Zealand is an island nation in the Pacific Ocean and a developed country that significantly relies on agriculture for its exports.
13. Hong Kong SAR
Insider Monkey’s Cost of Living Score: 113
Hong Kong SAR is a Chinese territory that is an Asian financial hub and an important port city for exports from Asia to the West.
12. Grand Duchy of Luxembourg
Insider Monkey’s Cost of Living Score: 114
The Grand Duchy of Luxembourg has the distinct honor of having the highest per capita income in the world. It is is also focused on becoming a hub for the global space exploration economy.
11. United States of America
Insider Monkey’s Cost of Living Score: 114
The United States of America is the only military superpower in the world and is one of the most technologically advanced countries in the world.
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Disclosure: None. 25 Countries With The Highest Cost of Living In The World in 2023 is originally published on Insider Monkey.