As the world has entered a period of heightened uncertainty, businesses, governments and households increasingly need forward-looking information to plan policies and consumption decisions. A recent study by researchers at the Asia Competitiveness Institute (ACI) develops a forecasting framework to estimate the 2025 Cost of Living Indices for 45 major cities worldwide.

Unlike many existing cost-of-living rankings, which provide a snapshot of current prices and simply report where cities rank, this study asks a more practical question: What will the cost-of-living look like next year?

To answer this, the researchers combine historical inflation data, official consumer price indices, exchange rates, and surveys on expenditure patterns with established time-series forecasting techniques. The study projects how inflation, exchange rates and local price movements are likely to reshape living costs for both expatriates and ordinary residents.

The forecasts suggest that global inflation would generally ease in 2025, although important differences remain across countries. Inflation is expected to remain relatively high in several emerging economies, while most advanced economies continue moving closer to price stability. The United States, for example, is projected to see overall inflation fall from around 3.0 percent in 2024 to approximately 2.6 percent in 2025.

One striking finding is the remarkable stability of global cost-of-living rankings. Among expatriates, New York remains the world’s most expensive city, followed closely by Zurich and Los Angeles. In Asia, Singapore and Hong Kong continue to rank among the world’s most expensive cities. At the opposite end of the ranking, Mumbai, Kuala Lumpur, Jakarta, and several Southeast Asian cities remain among the least expensive locations for expatriates.

The rankings for ordinary residents tell a similar story. New York remains the most expensive city, while several American cities continue to dominate the top ten. Meanwhile, cities such as Mumbai, Hanoi, Ho Chi Minh City and Bangkok remain among the least expensive for local residents. Overall, the research suggests that relative differences between cities change only gradually, even as inflation fluctuates from year to year.

The main drivers of high living costs are also identified. For expatriates, housing, private transportation, and international school fees account for much of the gap between the world’s most expensive cities. In Singapore, for instance, transportation costs are particularly high because expatriate spending assumes private vehicle ownership, with the Certificate of Entitlement (COE) system significantly increasing car prices. Housing costs are also elevated in cities such as Singapore and Hong Kong, where strong demand and limited land push up private rents, affecting expatriates more than local residents who may benefit from public or subsidised housing.

Exchange rates further influence international cost comparisons. Because expatriate cost-of-living indices are benchmarked against New York and expressed in US dollars, stronger local currencies make cities appear more expensive internationally. Ordinary residents, who earn and spend in local currencies, are far less affected by these fluctuations.

Beyond producing annual rankings, the research demonstrates the value of forward-looking cost-of-living analysis. Businesses can use these forecasts to plan expatriate compensation packages more effectively, policymakers can anticipate affordability pressures, and workers considering overseas assignments can make better-informed relocation decisions. Although unexpected events such as geopolitical shocks and major policy changes may alter future outcomes, forecasting provides an important tool for preparing for economic uncertainty rather than simply reacting to it.

The world’s most expensive cities are unlikely to change dramatically overnight. Persistent structural factors, particularly housing markets, transportation costs, and exchange rates, will shape urban affordability long after short-term inflation pressures begin to ease.

By NGUYEN, Tran Bao Phuong

Researchers: LIANG, Zixuan and NG, Wee Yang