Tokyo world's most expensive city; Mumbai ranks 130

Tokyo is the most expensive city in the world thanks to currency exchange rates, reveals a survey conducted by the Economist Intelligence Unit, an Economist Group business.

West European cities still dominate the top 10 worldwide, with just three cities (Tokyo, Osaka and Singapore) from outside Europe.

The strong US dollar has meant that cities in the US, along with any country that pegs its currency to the dollar, have jumped in the ranking. New York, Los Angeles and Chicago have risen from joint 39th to joint 23rd.

Geneva and Zurich managed to rise in the global ranking (as cities around them fell) to occupy 9th and 6th place, respectively.

Much less affected are the lower-cost locations in the world. The cheapest cities in the survey remain predominantly Asian, with four of the bottom five hailing from the Indian subcontinent: Kathmandu (Nepal), 128th; New Delhi and Mumbai (India), 129th and 130th, respectively; and Karachi (Pakistan), 132nd. Kiev (Ukraine) has seen the most dramatic fall, from 65th in the original ranking to joint 124th at recent exchange rates.

The cost of living in Manila is half that of New York, whereas that in Karachi, the cheapest city in the survey, is just over one-third of that of New York.

London has fallen to 27th place, from 8th ranking 2008, because of the plunge in the value of sterling, while New York has jumped from 39th rank in 2008 to 23rd place.

By comparing the ranking of cities in September 2008 (when the price survey was conducted) to the ranking in February 2009 (adjusting the September price data for recent exchange-rate movements), analysts see a sharp change in number as a result of the currency dislocation.

"Two factors drive the relative cost of living: local prices and exchange rates. Normally our ranking of cities by cost of living is relatively stable, but in the current global climate changes in exchange rates have significantly altered our assessment of the most and least expensive cities," said Jon Copestake, editor of the report.

Despite a falling cost of living, Western Europe still remains the most expensive region in the world. All but two of the West European cities surveyed are in the top 50. The cities that can claim the enviable (or unenviable) title of cheapest in Western Europe are Reykjavik, ranked 67th, and Manchester (UK), ranked 70th.

Meanwhile, currency falls have been more pronounced in Eastern Europe than in other regions. As a result, the region experienced an average drop of 22 index points in its cost of living - more than in any other region. Many cities fell sharply in the ranking, with the Russian cities of Moscow and St. Petersburg slipping to 63rd and 78th, respectively (from 31st and 45th positions previously). Using exchange rates from September 2008, Moscow was more expensive than New York, but is now cheaper than Lexington in the US.

EU membership has done little to affect the relative slides in currency. Warsaw (Poland) fell by 47 places in the ranking to 90th as its relative cost of living fell by 32 points. Of more concern is the dramatic slide of Kiev (Ukraine), which fell by 59 places to 124th, amid fears of a possible default on Ukraine's debt.

Oslo (Norway), previously the most expensive city, has fallen to fifth place, below Paris (France) and Copenhagen (Denmark). London (UK), originally ranked eighth, has slid dramatically in line with a weak sterling to joint 27th position, below New York (US) for the first time since 2002. Reykjavik (Iceland), one of the early casualties of the current global malaise, was the fifth most expensive city last year. It fell to 39th using exchange rates from September 2008, but by February this year had fallen to 67th in the ranking. Kuala Lumpur, capital of Malaysia, has a ranking of 90.

Worldwide Cost of Living, the bi-annual Economist Intelligence Unit survey, compares prices and products in 140 cities around the world. Its purpose is to provide companies with an unbiased and independent guide from which allowances can be calculated for executives and their families being sent overseas.