The briefing introduces the Cities Households Necessities Spending Index. The index ranks 1,075 cities by household expenditure on non-discretionary items, namely food, housing, and clothing and footwear. This analysis focuses on 160 major cities. The report goes on to assess the non-discretionary spending patterns during the current inflationary environment in 2022, and the implications of consumer spending differences on business strategies.
This report comes in PPT.
The Cities Household Necessities Index examines the household expenditure size and patterns for essential outlays, which include food and non-alcoholic beverages, housing, and clothing and footwear. The index provides a means of assessing city affordability, and covers 1,075 cities, with this report zoning in on 160 major cities.
Among the 160 major cities, households in San Francisco spent the most on necessities. In 2021, the city had a Necessities Spending Index of 130, with households on average spending USD52,588 on food, housing, and clothing and footwear. Conversely, Kolkata was the most affordable city. Its Household Spending Index of 6.9 made it 93.1% cheaper than the base city, with household expenditure on necessities standing at a mere annual average of USD2,800.
Necessity costs are expected to rise fastest in Tbilisi, Surabaya and Jakarta over 2021-2026. Economic growth is raising incomes, and this is expected to be reflected in higher average spending on necessities.
Food and non-alcoholic beverages tend to take up a larger share of household expenditure in less affluent cities. In some, food accounts for half of all expenditure. In more affluent cities, housing is typically the largest household expenditure category. Expenditure on clothing and footwear shows little difference between more affluent and less affluent cities.
The share of household expenditure on necessities is an important parameter in gauging city affordability. It can help estimate how much disposable income is left for discretionary goods and services and, in turn, provide a more intuitive assessment of consumer spending by taking into account income differences.
Rising inflation due to supply chain challenges and the war in Ukraine are pushing up living costs. The rising cost of fuel and supply chain disruptions are increasing food costs. This is expected to have most impact on low-income cities, where a large share of consumer expenditure goes on food.
Protecting the poor remains crucial, especially in a fast-rising inflationary environment, where living costs are reaching new highs. Governments have a number of options, which can include providing cash transfers, temporarily reducing value-added taxes on essential consumer goods and introducing rent caps.
The Cities Household Necessities Index can provide insights into spending patterns, and assist in estimating living costs. It can help also help some businesses adjust pricing strategies based on consumer incomes at the regional or city level.
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