Guide
How a cost-of-living index works
A plain-language look at how cost-of-living indices are built, how the index-ratio method turns one into an equivalent-salary estimate, and where the method stops being trustworthy. Last reviewed .
What a cost-of-living index is
A cost-of-living index is a single number that summarises how expensive it is to live in one place compared with another. The idea is borrowed from price-index economics: you define a fixed "basket" of typical expenses — rent, groceries, transport, utilities, eating out, and a handful of services — price that same basket in each city, and then express every city's total as a percentage of one reference city. If New York is chosen as the baseline and set to 100, a city where the basket costs roughly 30% less comes out at about 70, and a city where it costs 20% more comes out at about 120. The baseline is arbitrary; what matters is that every city is measured against the same yardstick, so the numbers can be compared to one another.
Because the basket is fixed, the index isolates price differences from differences in what people buy. That is a deliberate simplification. Two cities with the same index can still feel very different to live in, because residents adapt their spending to local prices — they rent smaller flats where housing is dear, or eat out more where restaurants are cheap. The index does not try to capture those behavioural shifts; it answers the narrower question, "if I bought the same things in both places, how would the bills compare?"
The index-ratio method
Once each city carries an index on a shared baseline, comparing two of them is just division. Suppose your current city sits at an index of 100 and the city you are considering sits at 70. The ratio is 70 divided by 100, or 0.7, which says the destination is indicatively about 30% cheaper for the same basket. Reverse the direction — moving from the cheaper city to the dearer one — and the ratio becomes 100 divided by 70, roughly 1.43, implying you would need about 43% more to buy the same things. The comparison is directional: the order of the two cities matters, and swapping them inverts the multiplier.
To turn that ratio into something personal, you multiply your income by it. If you earn a certain salary in the first city, multiplying by 0.7 estimates the salary that would give you a broadly similar standard of living in the second. This is the calculation behind the equivalent-income figure on this site. Crucially, the result stays in your original currency, because a ratio is currency-neutral — it is a statement about purchasing power, not a foreign-exchange conversion. We deliberately do not apply a live exchange rate, because exchange rates move daily and reflect trade and capital flows rather than the local price of rent or groceries, so mixing them in would imply a precision the method does not have.
Weighting, and why rent dominates
Not every item in the basket carries the same weight. Housing is usually the single largest expense in a household budget, so a city that is only slightly pricier on average can be dramatically pricier for someone whose biggest cost is rent. That is why this tool offers a rent-weighted mode in addition to the plain overall comparison. The overall index blends all categories into one composite figure, whereas the rent-weighted view leans more heavily on the housing component, which often better reflects the experience of a renter relocating for work. Looking at both is useful: if the overall and rent-weighted ratios disagree sharply, housing is doing most of the work, and you should pay special attention to local rents for the specific neighbourhood you have in mind.
The limits you must keep in mind
An index is an average, and averages hide variation. Within a single city, rent can differ by a factor of two or three between a central district and the outskirts, so a city-wide index can be misleading for any particular address. The basket itself is a snapshot: prices drift with inflation, currencies fluctuate, and a figure that was accurate last year may be stale today, which is why every index here is tagged with the period it reflects — currently as of 2026-06. The composition of the basket also embeds assumptions about a "typical" lifestyle that may not match yours; if you do not own a car, transport costs matter less to you than the index assumes, and if you have children, schooling and childcare costs that the basket may under-weight can dominate. Tax is another gap: a cost-of-living index compares pre-tax prices, so two cities with identical indices can leave you with very different take-home pay once income tax and social contributions are deducted.
For all these reasons, the right way to use a cost-of-living index is as a first-pass sanity check, not a budget. It can tell you quickly whether a job offer in another city is likely to stretch further or fall short, and it can help you shortlist destinations before you invest time in detailed research. But once a city makes your shortlist, replace the index with real numbers: look up actual rents for the neighbourhood you would live in, price a typical week of groceries, check transport passes, and run your expected salary through a proper tax calculator. The index gets you to the right ballpark; the listings and the official tax tools get you to a figure you can actually plan around.
How we keep the figures honest
The indices used on this site are indicative and rounded on purpose. Rather than publish a falsely precise number such as 72.4, we keep the values broad and clearly labelled, because the underlying data simply is not precise enough to justify decimals. Each city is tagged with the period its index reflects and carries an explicit note to verify before relocating. The simplified take-home pay estimate that sits alongside the comparison is treated the same way: it applies a few widely-known tax bands plus a single social-contribution rate, is labelled a simplified estimate rather than tax advice, and is meant only to show the rough order of magnitude of deductions. When a number cannot be defended to the decimal, the honest thing is to say so and to point you toward the official source — and that is the principle this guide and the calculator are built on.