How do the index and comparisons work?
How are the comparisons calculated?
First of all, the expenses of a "typical expat" (if such a thing exist) is divided in 6 groups:
This grouping is based on international reports about cost of living variations. Combining information available in some of these reports, we can work out an average weight for each group within the total typical purchase basket of expats.
Some of the sources used are:
- Expenditure at national prices in national currencies, OCDE
- Índice de Precios de Consumo Armonizado. Unión Europea y España, Spain's National Institute of Statistics
- Average annual expenditures and characteristics, Consumer Expenditure Survey, Bureau of Labor Statistics, US DOL
- Canasta nuevo IPC Gran Santiago, Chile's National Institute of Statistics
Each of these groups is subdivided in further groups, each of them with a different weight inside the supergroup. Each of these subgroups is captured in our database by using a 'proxy' representative product or service.
Our users enter prices, in a collaborative manner, for each of these products, in all the cities available.
In general, the more prices entered for a city, the more accurate comparisons will be.
Our statistical model aggregates, cleans up and models all the prices entered, removing erroneous and malicious entries in the process. Our model produces an average for the price, and a reliability signal that indicates how good the underlying data is for that product.
When we detect, using this reliability signal, that the data for a city or comparison is not 100% reliable, we display a prominent warning informing of this issue. We will also exclude this city from our general index (although the cities will still be available to make direct comparisons, with the prominent warning displayed).
Once we have reliable prices for each product and city, to compare two cities we will first convert both prices to a common currency using the current exchange rate (updated every 3 days from Yahoo Finance). We then compare each individual product or service and find the difference in price between the two. We will then combine the results of every product within their group using the weight of each product to adjust the difference within the group. Then the price difference of the groups get weighted and combined together to get the final price difference between cities.
What is the CoLI
The CoLI attempts to be a measure of how expensive (or cheap) life in a city is. It gets recalculated every day, and puts every city in relation with each other by assigning them a CoLI value.
To calculate each cities' CoLI value, we start by assigning a value of 100 to a central reference city (Prague, Czech Republic). Once the reference point has been stablished, the CoLI value of every other city in the database is calculated by comparing their CoL to the CoL in Prague.
Prague was chosen as the central reference (with a value of 100) for a number of reasons:
- It is not among the most expensive cities, neither among the cheapest.
- It has an important expat community.
- We are based in Prague, and therefore we can monitor the prices in Prague closely and ensure that the data in Prague will always be reliable and up-to-date.