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{{short description|Cost to live based on price of necessities}}
{{Other uses|The Cost of Living (disambiguation)}}
The '''cost of living''' is the [[cost]] of maintaining a certain [[standard of living]] for an individual or a [[household]]. Cost-of-living calculations are also used to compare the cost of maintaining a given standard of living across different geographic areas.<ref name=":0">{{Cite journal |last=Jambrina-Canseco |first=Beatriz |date=2026-07-25 |title=Local cost of living and the geography of inequality: evidence from Spain |journal=The Journal of Economic Inequality |language=en |doi=10.1007/s10888-026-09734-8 |issn=1573-8701|doi-access=free }}</ref> Differences in the cost of living between locations can be measured using [[purchasing power parity]] rates.

==Measurement==
Cost of living is the [[cost]] of maintaining a certain [[standard of living]]. Changes in the cost of living over time can be operationalized in a [[cost-of-living index]]. Cost-of-living calculations can be used to compare the cost of maintaining a certain standard of living across different geographic areas.<ref name=":0" /> Differences in the cost of living between locations can be measured using [[purchasing power parity]] rates.

Major components of the cost of living include food, [[housing]] costs, and energy.<ref name=irc /> Energy costs include heating, light, and cooking costs. In the United Kingdom, about 18% of an average home's energy costs are for [[water heating]].<ref>Yorkshire Water (2024), ''Summer of Saving''</ref>

[[File:Consumer price index 2024 relative to 2010.svg|thumb|upright=1.2|[[Consumer price index by country]] in 2024 compared to 2010 in %<ref name="World Bank">{{Cite web|url=https://data.worldbank.org/indicator/FP.CPI.TOTL?end=2024&name_desc=false&start=1960&view=chart&year=2024|title = Consumer price index (2010 = 100), World Bank Group, accessed July 2025}}</ref>
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The [[consumer price index]] (CPI) measures the prices of goods and services bought by households.<ref>{{cite book|url=https://doi.org/10.1787/9789264055087-en|title=OECD (2008), OECD Glossary of Statistical Terms|date=2008 |publisher=OECD Publishing, Paris|doi=10.1787/9789264055087-en |isbn=978-92-64-02556-1 |access-date=September 13, 2019}}</ref> Increases in CPI over time show an increase in cost of living in that time period. The increase in the consumer price index within one year is also called the [[inflation]] rate. 

The [[Economist Intelligence Unit]] produces a semi-annual (twice-yearly) worldwide cost-of-living survey that compares more than 400 individual prices across 160 products and services. They include [[food prices|food]], drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help, and recreational costs. The survey itself is an online tool designed to calculate cost-of-living allowances and construct compensation packages for corporate executives who maintain a Western lifestyle. The survey incorporates easy-to-understand comparative cost-of-living indices between cities. The survey allows city-to-city comparisons, but for this report, all cities are compared to a base city, [[New York City]], with an index set at 100. The survey has been carried out for more than 30 years.

In March 2017, [[Singapore]] remains the most expensive city in the world for the fourth year running, in a rare occurrence where the entire top five most expensive cities were unchanged from the year prior.<ref>{{cite news| url=https://www.bloomberg.com/news/articles/2015-03-03/singapore-maintains-top-spot-as-world-s-costliest-city-eiu-says | work=Bloomberg | title=Singapore Maintains Top Spot as World's Costliest City | date=March 3, 2015}}</ref> [[Sydney]] and [[Melbourne]] have both cemented their positions as top-ten staples, with Sydney becoming the fifth most expensive, and [[Melbourne]] becoming the sixth. Asia is home to more than five of the most expensive cities in the top twenty, but also to eight of the ten cheapest cities.

==Effects==
A sharp rise in the cost of living can trigger a [[cost of living crisis]],<ref name=irc>{{cite web |title=What the cost of living crisis looks like around the world |url=https://www.rescue.org/article/what-cost-living-crisis-looks-around-world |website=International Rescue Committee |date=7 May 2024 |access-date=15 July 2024 |language=en}}</ref> where purchasing power is lost and, for some people, their previous lifestyle is no longer affordable. 

The link between [[income]] and [[health]] is well-established.<ref name="tphi">{{cite journal |last1=Broadbent |first1=Philip |last2=Thomson |first2=Rachel |last3=Kopasker |first3=Daniel |last4=McCartney |first4=Gerry |last5=Meier |first5=Petra |last6=Richiardi |first6=Matteo |last7=McKee |first7=Martin |last8=Vittal Katikireddi |first8=Srinivasa |date=27 April 2023 |title=The public health implications of the cost-of-living crisis: outlining mechanisms and modelling consequences |journal=The Lancet Regional Health - Europe |volume=27 |article-number=100585 |doi=10.1016/j.lanepe.2023.100585 |pmid=37035237 |pmc=10068020 }}</ref> People who are facing poverty are less likely to seek regular and professional medical advice, receive dental care, or resolve health issues. The cost of [[Prescription drug|prescription medicine]] is often cited as a metric in cost-of-living research and [[Consumer price index|consumer price indices]].<ref>{{Cite web |date=2025-01-29 |title=Consumer Price Index, Australia methodology, December Quarter 2024 {{!}} Australian Bureau of Statistics |url=https://www.abs.gov.au/methodologies/consumer-price-index-australia-methodology/dec-quarter-2024#cite-window1 |access-date=2025-04-10 |website=www.abs.gov.au |language=en}}</ref> Cost of living pressures may lead to [[household energy insecurity]] or fuel poverty as well as [[housing stress]].<ref name="tphi"/> When the cost of living increases without proportional increases in [[per capita income]], then the share of people who do possess the privilege of a comfortable financial situation tends to decrease. 

==Causes==
Some taxes can increase the cost of living, for example studies found [[sales tax]] tend to increase prices.<ref name="y594">{{cite journal | last1=Besley | first1=Timothy J. | last2=Rosen | first2=Harvey S. | title=Sales Taxes and Prices: An Empirical Analysis | journal=National Tax Journal | volume=52 | issue=2 | date=1999 | issn=0028-0283 | doi=10.1086/NTJ41789387 | pages=157–178 | url=https://www.journals.uchicago.edu/doi/10.1086/NTJ41789387 | access-date=2026-08-04| url-access=subscription }}</ref><ref name="g109">{{cite journal | last1=Zhao | first1=Jianqiang (Jason) | last2=Barrett | first2=Christopher B. | last3=Zheng | first3=Yuqing | last4=Kaiser | first4=Harry M. | title=The incidence of grocery taxes in US food and factor markets | journal=American Journal of Agricultural Economics | date=2025 | issn=0002-9092 | doi=10.1111/ajae.70034 | url=https://onlinelibrary.wiley.com/doi/10.1111/ajae.70034 | access-date=2026-08-04 | article-number=ajae.70034 | url-access=subscription }}</ref> Housing costs are a significant share of the cost of living.<ref name="g584">{{cite report | last1=Lyons | first1=Ronan | last2=Shertzer | first2=Allison | last3=Gray | first3=Rowena | title=Rental Prices and the Cost of Living in the United States, 1914–2006 | publisher=National Bureau of Economic Research | publication-place=Cambridge, MA | year=2026 | doi=10.3386/w35124 | page=}}</ref> Increased [[market concentration]] and reduced [[Competition (economics)|economic competition]] can increase the cost of living.<ref name="i404">{{cite journal | last1=Hovhannisyan | first1=Vardges | last2=Cho | first2=Clare | last3=Bozic | first3=Marin | title=The relationship between price and retail concentration: evidence from the US food industry | journal=European Review of Agricultural Economics | volume=46 | issue=2 | date=2019 | issn=0165-1587 | doi=10.1093/erae/jby026 | pages=319–345 | url=https://academic.oup.com/erae/article/46/2/319/5077176 | access-date=2026-08-13| url-access=subscription }}</ref>

A positive annual [[inflation target]] by [[central bank]]s results in a slow increase in the nominal cost of living.<ref name="k641">{{cite journal | last1=Bernanke | first1=Ben S | last2=Mishkin | first2=Frederic S | title=Inflation Targeting: A New Framework for Monetary Policy? | journal=Journal of Economic Perspectives | volume=11 | issue=2 | date=1997 | issn=0895-3309 | doi=10.1257/jep.11.2.97 | pages=97–116 | doi-access=free }}</ref>

==Cost-of-living adjustment (COLA)==
Employment contracts and pension benefits can be tied to a cost-of-living index, typically to the [[consumer price index]] (CPI). Another statistical measure, COLA,<ref>{{Cite web |title=Cost-of-Living Adjustment (COLA) Information {{!}} SSA |url=https://www.ssa.gov/cola/ |access-date=2025-03-03 |website=www.ssa.gov |language=en}}</ref> adjusts salaries based on changes in a cost-of-living index. Salaries are typically adjusted annually. They may also be tied to a cost-of-living index that varies by geographic location if the employee moves. In this latter case, the expatriate employee will likely see only the [[disposable income|discretionary income]] portion of their salary indexed to the CPI differential between the new and old employment locations, leaving the non-discretionary portion of the salary (e.g., mortgage payments, insurance, car payments) unmodified. Some examples of cost-of-living adjustments made recently include a 3.2% increase in Social Security benefits and an increase in the maximum annual contribution limit for traditional and Roth IRAs from $22,500 to $23,000, both implemented in 2024.

Annual escalation clauses in employment contracts can specify retroactive or future percentage increases in worker pay that are not tied to any index. These negotiated pay increases are colloquially referred to as cost-of-living adjustments or cost-of-living increases because they resemble increases tied to externally determined indexes. The cost-of-living allowance equals the nominal interest rate minus the real interest rate.

Stipends or extra pay provided to employees temporarily relocated may also be called cost-of-living adjustments or cost-of-living allowances. Such adjustments are intended to offset changes in welfare due to geographic differences in the cost of living. Such adjustments might more accurately be described as a per diem allowance or tied to a specific item, as with housing allowances. Employees who are being permanently relocated are less likely to receive such allowances, but may receive a base [[salary]] adjustment to reflect local market conditions.

[[File:Inflation M2 CPI.webp|thumb|{{legend-line|#00BFFF solid 3px|[[Money supply|M2]] % change from a year ago}}{{legend-line|Chartreuse solid 3px|[[Consumer price index]]}} ]]
When cost-of-living adjustments, negotiated wage settlements, and budgetary increases exceed the ''CPI'', media reports frequently compare the two without considering the relevant tax code. However, CPI is based on the retail pricing of a [[Market basket|basket]] of goods and services. Most purchases from that same basket require the use of after-tax dollars—dollars that were often subject to the highest ''marginal tax rate''. Consequently, the COLA will necessarily have to exceed the CPI inflation rate to maintain purchasing power.<ref>{{Cite web|url=https://www.bls.gov/cpi/|title=CPI Home |website=U.S. Bureau of Labor Statistics |language=en-us|access-date=September 30, 2019}}</ref>

The widely recognized problem known as [[bracket creep]] can also occur in countries where the marginal tax brackets themselves are not indexed — COLA increases place more dollars into higher tax rate brackets. Only under a [[flat tax]] system would a percentage gain on gross income translate into a comparable inflation-offsetting gain at the after-tax level.

Some salaries and pensions in the [[United States]] with a COLA include:
* [[Social Security (United States)|Social Security]]
* [[Civil Service Retirement System]] (CSRS)<ref name="cola wars">{{cite web |url=http://www.govexec.com/dailyfed/0906/090806rp.htm |title=COLA Wars |date=September 8, 2006 |publisher=[[National Journal Group]] |access-date=September 23, 2008 |last=Flanagan |first=Tammy |website=GovernmentExecutive.com |archive-url=https://web.archive.org/web/20081005120234/http://www.govexec.com/dailyfed/0906/090806rp.htm |archive-date=October 5, 2008 |url-status=dead }}</ref>
* [[Federal Employees Retirement System]] (FERS)<ref name="cola wars" />

Pensions in Canada with a COLA include:
* [[CAW Local 200|Canadian Auto Workers union (CAW) Local 200 (Ontario)]]

[[File:The Histadrut workers union, organized a anniversary against the low wages of the workers and the high cost of living (FL62936306).jpg|thumb|The [[Histadrut]] worker's union in [[Israel]] holding a cost-of-living protest in 1980]]

===United States===
Social security benefits in the United States receive cost-of-living adjustments (COLAs) to match increases in the [[Consumer price index in the United States#CPI for urban wage earners and clerical workers (CPI-W)|Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)]]. They can also receive funds from public charities for specific issues. The COLAs are set annually and are calculated based on the CPI-W value for the third quarter of the year (averaging the values from July, August, and September). COLAs can only increase benefits, so in deflationary years when the CPI-W drops, there is no COLA.<ref>{{cite web |url=https://www.ssa.gov/cola/|title=Cost-of-Living Adjustment (COLA) Information|website=Social Security|publisher=Social Security Administration|access-date=August 11, 2021}}</ref>

A non-taxable [[Cost of Living Allowance (U.S. Military)]] is frequently given to members of the [[Military of the United States|U.S. military]] stationed at [[United States military bases|overseas bases]] if the area to which a service member is assigned has a higher cost of living than the average area in the United States. For example, [[United States Forces Japan|service members stationed in Japan]] receive a cost-of-living allowance of between $300 and $700 per month (depending on [[pay grade]], years of service, and number of dependents), in addition to their base pay.

=== Canada ===
Canada's social security system incorporates cost-of-living adjustments (COLA) across multiple federal and provincial programs to maintain the purchasing power of retirement benefits amid inflation. Federal programs include the Old Age Security (OAS) pension, which is adjusted quarterly and increased by 2.0% over the past year.<ref name="blueprint">{{Cite web |date=2025-01-13 |title=Key Pension Updates for 2025 (CPP, OAS, GIS, Payment Dates) - Blueprint Financial |url=https://blueprintfinancial.ca/key-pension-updates-for-2025-cpp-oas-gis-payment-dates/ |access-date=2025-03-03 |language=en-US}}</ref> For the January to March 2025 period, OAS showed no increase as the CPI reflected a small dip over the previous three months.<ref name="blueprint" /> The Canada Pension Plan (CPP) benefits will see increases due to cost-of-living adjustments to address rising living costs.<ref>{{Cite web |date=2025-02-25 |title=$400 Increase In CPP/OAS Benefits in February 2025: Who will get this? Check Payment Date - UP Excise Portal |work=UP Excise Portal |url=https://www.upexciseportal.in/400-increase-in-cpp-oas-benefits-in-february/ |access-date=2025-03-03 |language=en-US}}</ref>

Beyond federal initiatives, provincial and occupational pension plans also implement COLA mechanisms. British Columbia's Municipal Pension Plan applied a 1.6% increase effective January 1, 2025, while Ontario's OPTrust pensions increased by 2.7% for 2025.<ref name="optrust">{{Cite web |title=Cost of Living Adjustment for Your Pension {{!}} OPTrust |url=https://optrust.com/guides-fact-sheets/cost-of-living-adjustment-for-your-pension |access-date=2025-03-03 |website=optrust.com}}</ref> The Alberta Teachers' Retirement Fund demonstrates variable adjustment rates, with 1.74% for service before 1993 and 2.03% for service after 1993.<ref name="atrf">{{Cite web |title=Cost-of-Living Adjustments (COLA) |url=https://www.atrf.com/about-your-pension/cost-of-living-adjustments/ |access-date=2025-03-03 |website=Alberta Teachers' Retirement Fund (ATRF) |language=en-US}}</ref>

COLA calculation methodologies share common features but vary in implementation. Most provincial plans use changes in the Canadian consumer price index (CPI) measured over specific periods. The College Pension Plan bases its 2.6% COLA on "the change in the 12-month average Canadian consumer price index (CPI) up to the end of October 2024 compared to the previous 12-month period". The Alberta Teachers' Fund uses the Alberta Consumer Price Index (ACPI), which is specific to Alberta's economy.<ref name="atrf" /> For new retirees, COLA is typically pro-rated based on pension receipt duration.<ref name="atrf" />

These adjustments significantly impact retirees' long-term financial security. OPTrust illustrates this effect: a $20,000 pension that began in 1995 would grow to $37,313 by 2025—an 87% increase over three decades.<ref name="optrust" /> While preserving purchasing power remains the primary goal, pension administrators must balance this with sustainability concerns. The College Pension Plan notes that "the plan's ability to provide you a full COLA demonstrates the health of the plan's inflation adjustment account", while the BC Municipal Pension Plan has removed COLA caps through 2025 due to the financial strength of the plan's accounts.<ref>{{Cite web |title=Pension Board Agrees to Remove Cost-of-Living Adjustment Cap {{!}} BC Nurses' Union |url=https://www.bcnu.org/news-and-events/news/2022/pension-board-agrees-remove-cost-living-adjustment-cap |access-date=2025-03-03 |website=www.bcnu.org}}</ref>

As Canada faces ongoing inflation pressures, these cost-of-living adjustments across federal, provincial, and occupational programs provide crucial protection for retirees, demonstrating Canada's commitment to safeguarding retirement benefits against inflation's erosive effects while maintaining system sustainability.

==See also==
* {{anl|Affordable housing}}
* {{anl|Living wage}}
* [[ACCRA Cost of Living Index]]
* {{anl|Precariat}}
* [[United Kingdom cost of living crisis]]
* [[United States Consumer Price Index]]
* [[List of most expensive cities for expatriate employees]]
* {{anl|Middle class squeeze}}
* {{anl|Cost of raising a child}}
* {{anl|Walk to work protest}}
* {{anl|Boots theory}}

==References==
{{Reflist}}

==External links==
{{EB1922 Poster|Cost of Living}}
* [http://www.eiu.com/WCOL2012 Economist Intelligence Unit worldwide cost of living survey results] (requires registration)
* [http://www.aier.org/article/48-cost-living-calculator Cost-of-Living Calculator] relative to time from [[American Institute for Economic Research]] (AIER)
* [https://www.urologytimes.com/view/money-matters-notable-cost-of-living-adjustments-for-2024 Notable cost-of-living adjustments for 2024]
* [https://www.bmj.com/content/380/bmj.p747 People in Europe choosing not to take prescription medicine due to cost-of-living crisis]
* [https://www.nber.org/system/files/working_papers/w22816/w22816.pdf Effects of the cost-of-living crisis on affordability of housing in America]
* [https://www.loc.gov/item/unk81050287/ Studies on the cost of living for the professional class of America in 1928]
* [https://wheretolive.org/ Cost of Living]

{{Quality of life country lists}}
{{Social issues in the United States}}
{{Authority control}}

[[Category:Personal finance]]
[[Category:Social issues]]
[[Category:Microeconomics]]
[[Category:Standard of living]]
[[Category:Costs|Living]]