‘Everything is very expensive’, surely, this phrase has crossed your mind at some point. And it is no coincidence, since in recent years the variation in the cost of living has accentuated as an effect of the behavior of inflation.
In Latin America, there is one country that is at the top of the list of the most expensive places to live. The crown when it comes to that issue goes to: Uruguay.
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With 3.4 million inhabitants, Uruguay has the highest cost of living in the region. Broadening the picture even further, The country ranks 37th on a scale among 146 economies worldwide, ranking above places like Japan or Spain.
In fact, to better understand the upward trend that has been established in that part of South America, the Center for Development Studies (CED), at the request of the Uruguayan central bank, conducted a comparison of 600 products in Uruguay and 43 other nations.
According to the research, more developed countries such as France, Germany or the United Kingdom showed lower prices than those that can be found in Uruguayan cities such as Rivera or Monte Video. Furthermore, compared to its peers in the region, products in Uruguay cost more than twice as much as in Bolivia and almost 80% more than in Mexico.
But what drives this phenomenon? What has led it to be crowned one of the most expensive areas in the world to live?
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Inflation Bloomberg
What drives the cost of living
To put this into context, it is important to establish some key points.
The World Bank classifies Uruguay in the category of high-income countries, a place it has earned thanks to its the Latin American country with the highest Gross Domestic Product (GDP) per capita. Added to this is their income level, since, according to data from the National Institute of Statistics of Uruguay, each Uruguayan household receives an average of close to 2,500 dollars per month.
However, despite the high wages, they still do not fully compensate for the cost of living of the inhabitants. Here macroeconomic factors come into play.
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For example, Uruguay is becoming an upper-middle-income country, which means that the average salary is high and services, which have a large salary component, are becoming more expensive.
On the other hand, the Government’s strategy to combat inflation influenced the appreciation of the Uruguayan currency. In addition, The exchange rate imbalance causes Uruguay to lose competitiveness against its trading partners and become more expensive in comparison.
CED research, for its part, indicates that this phenomenon occurs more strongly in sectors where there is practically no national production.
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