The latest Mercer ranking of cities by cost of living places Moscow, London and Seoul in first, second and third place. Mercer’s own analysis of the rankings gives prominence to changes in exchange rates, and particularly, the fall in the value of the dollar, as the chief ‘motor’ for moves up or down the list. However, in the case of London the change from 5th place in 2006 to second this year is also ascribed to higher property rental costs. Of course, transport costs for London residents are another factor helping the city up the scale. Glasgow (up from 60th to 36th) and Birmingham (up from 69th to 41st ) are among those cities to have moved furthest.

For a true appreciation of what changes in rankings mean for people on the ground it’s important to be aware of developments in Mercer’s benchmark city, New York. The benchmark itself does not remain static; New York housing costs are reported to have risen by an average of 6.5% in the course of 2006. In the US, the consumer prices index rose 3.23% in 2006 and the rise in the 12 months to March (when the Mercer survey was conducted) was 2.77%.

These increase in New York costs of living need to be borne in mind when considering Mercer’s cost of living indices for other cities (which are all relative to New York). So far the serious softness in much of the US housing market does not appear to be showing up in Mercer’s figures.

Although a cost of living survey is necessarily a somewhat blunt instrument for accessing real estate in the different cities covered, the Mercer report does throw up some interesting contrasts, nevertheless. Focusing on places covered by Overseas Property Mall in the last few months, it’s interesting that Bratislava is not only more expensive than Prague again, but costs of living there have risen considerably more sharply in the last year.

Berlin continues to be slightly cheaper than Munich or Frankfurt though all three have risen up the table as a result of the increased rate of exchange for the Euro. Sofia is Europe’s least expensive city (ranked 108th). Athens, Barcelona and Madrid, also affected by the Euro’s rise, have all risen a long way up the table in the last year.

Outside Europe, Dubai and Abu Dhabi have both slipped down the table a little. Does this reflect a measure of stability in property prices and rents in the UAE? Interestingly, Dakar in Senegal is higher up at 33rd with a substantial increase in its cost of living index. However, this is probably mainly a reflection of the fixed exchange rate the CFA franc enjoys with the Euro.

Finally, it is worth remembering that Mercer’s methodology is based on the similarities in spending patterns among people in middle and higher income brackets no matter where they originate from. The rankings are of limited value to those relocating themselves, say as a matter of lifestyle choice, who are happy to do as the Romans do when in Rome.