Why are cities in Latin America getting more expensive?

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TWO REGIONS stood out in this year’s Worldwide Cost of Living survey by EIU, our sister company. Europe had some of the most expensive cities in the world: Zurich came joint first with Singapore, and western European cities occupied ten of the top 20 spots. But the biggest climbers of any region were cities in Latin America. Our map below shows which have become the most expensive.

Cities in Latin America rose by an average of 13 places in 2023. Mexico City, which ranked 76th two years ago, now sits at 16th—ahead of Milan, Munich and Washington, DC. Mexico’s other cities were also among the world’s biggest climbers: Monterrey, Aguascalientes and Querétaro City rose by 20, 39 and 48 places, respectively. The region’s other priciest cities included Montevideo, the capital of Uruguay; San José, the capital of Costa Rica; and Lima, the capital of Peru.

What explains the jumps? The biggest factor is that EIU’s index measures the affordability for foreigners rather than for locals (it was designed primarily to calculate compensation packages for expats and business travellers). In 2022 the region’s central banks acted aggressively to reduce inflation, which caused currencies to appreciate. As the index is benchmarked to the American dollar, exchange rates can have a big effect on the ranking.

The Mexican peso, for example, rose by 15% against the dollar this year. The currency in Costa Rica, one of the few countries to experience deflation, also appreciated, which pushed its cities up the ranking despite the fall in prices.

Inflation in some parts of Latin America has not been tamed: annualised inflation remains higher than 160% in Argentina and more than 280% in Venezuela. But these are outliers. In much of the rest of Latin America inflation rates have fallen to single digits. That is a respite for locals, even if prices are higher for travellers with dollars.