How does inflation effect the cost of living in a particular country?
Inflation can be thought of as the change in the cost of living. So low inflation can be consistent with a relatively high level in the cost of living. The level of the cost of living has to be referenced to something to get any meaning. If you want to compare the cost of living across countries then you need to compare the cost of a basket of goods and services in a common currency. See if you can find a reference to the ‘Big Mac Index’ to compare the cost of a burger! The problem in such calculations is the exchange rate between currencies of different countries. Because sterling is quite strong, the UK seems an expensive place relative to many other countries. Although much of the euro area is more expensive than the UK. And then the true cost of living depends on earnings too. China may be cheap for someone from the UK but not so cheap for someone doing the same job in China. By the way, dont confuse the cost of living in London with the that of the UK. London is much more expensiv
