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Analysis & Opinion
17.08.11 Incredible Moscow
By Tai Adelaja

The 2011 Prices and Earnings report, released by UBS Wealth Management Research on Tuesday, is a welcome break for authorities in Moscow as they struggle to transform the Russian capital into a flourishing commercial and financial hub. In a rare find for a survey on cost increases and rising prices, the Russian capital city was conspicuously absent from the top bracket of the most expensive cities in the world.

Moscow did not even make the rank of the top three cities where the highest salaries are earned in the world, despite hosting the largest number of billionaires in Europe. That honor goes to Zurich, Geneva and Copenhagen, according to the study, which shows the effects of currency moves and compares prices and earnings in 73 cities for 122 goods and services worldwide.

Moscow has also been proving itself positively in other ways, especially in the survey’s cost of living index. Since 2009, when the “Prices and Earnings” data was last compiled, Moscow climbed up 14 positions to place 42nd in the cost of living index. The survey shows that it is by far cheaper to live in Moscow than in New York, American most expensive city, despite the fact that U.S. cities are now relatively cheaper places than they were two years ago due to the weakness of the U.S. dollar. Moscow ranked 41st compared to New York's 14th place as America's most expensive city.

Life in Moscow has been benefitting as the U.S. dollar weakens and the appreciation of the ruble helps mitigate rising inflation pressures, said the report. Growth in consumer prices eased in June and July, after peaking at 9.6 percent in April and May. Inflation, which reached 8.8 percent last year, has been stable at five percent since January 2011. The Central Bank expects inflation within its seven percent target, the lowest since the Soviet Union collapsed in 1991. But this could also mean that those planning business trips or vacations to Moscow will notice that the greenback is not quite what it used to be, as they still have to spend more for less value.

But while analysts say it is tempting to see a positive trend in the new figures, they cautioned against too much optimism. "The consumer price index in Russia has a completely different structure compared to that in other European countries,” Maria Kataranova, an analyst at Economic Expert Group, said. “Russians spend most of their income on groceries, while in Europe the consumer index is all about consumer goods and services." The relative purchasing power in Moscow remains low when the domestic wage level is compared to domestic prices for a basket of goods in other cities worldwide, according to the report. Moscow ranked 41st in terms of net wages after taxes and social insurance contributions have been deducted. The UBS study found that employees in Zurich, Geneva and Copenhagen have the highest gross earnings. In other words, though the cost of living is lower in Moscow, the average Muscovite has a domestic purchasing power several times lower than the average citizen of Switzerland, analysts say.

Despite the generally upbeat report, some economists insist that eking out a living in Moscow will always be more expensive not just in terms of the cost of the premises, but also in commuting to places of work and buying basic consumer goods. In addition to long winters, traffic congestion and pollution, many foreigners don’t move to Moscow because of the high cost of living, especially the sky-high price of accommodation in the city center. When juxtaposed with low wages and domestic purchasing power, the lower cost of living shows that Muscovites have to work harder to earn the same amount of money and save for a longer period to purchase the same product. Food prices, while not rising significantly, have remained uncomfortably stagnant for Muscovites, and the cost of the consumer basket is growing. "A year after the financial crisis, the consumer economy is again gaining momentum," said Yevgeny Gavrilenkov, the chief economist at Troika Dialog. "Growing consumer credit has mostly boosted consumption, but in a contagion it is also boosting the price level of the consumer basket."
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