The changes in national and regional inflation rates are challenging foreign companies to make appropriate adjustments to their employee’s salary in order for them to be able to afford the same standard of living after a rising inflation rate. In 2016, Shanghai became the world’s 7th most expensive city according to Mercer’s 2016 Cost of Living Rankings, taking in account 200 items in each location, including housing, transportation, food, clothing, household goods, and entertainment. Shanghai, being the home of many expatriates from all over the world, it is to look closer on the latest development of the city’s inflation rate and its connection to the overall cost of living.
Recent Inflation Figures
According to the National Bureau of Statistics of China, during the months of January and February 2017, the inflation rate in China accounted for 2,5 % and 0,8 %, calculated by the change in the Consumer Price Index (CPI) in relation to its level in the same month in the previous year. Driven by a fast increase in the cost of food and non-food, the inflation rate in January was the highest inflation rate since May 2014. In comparison, the regional inflation rate in Shanghai accounted for 3,6 % in January and 1,6 % in February, both clearly above the national figures. Furthermore, the statistic makes clear that the Shanghai CPI has remained above 3 % for 11 consecutive months and above the national level for 37 consecutive months. Food and housing prices, the largest components of the CPI, jumped 3.5 % and 4.2 % year-on-year, the data showed. Thus experiencing price drops in both sectors of transportation and education, it can be said that these costs are representing a rather small portion of an expatriate’s expenses, making it necessary for the employer to take in account more factors than just the national and the regional inflation rates when adjusting salaries.
To summarize, in estimating the salary of a Shanghai-based employee, the following should be considered:
- Regional inflation rate figures for Shanghai extending national ones
- Taking the national inflation instead of specific regional rate can lead to wrong adjustments to employee’s salary
- Expatriate’s costs focusing mainly on housing and food prices rather than transportation or education, giving them a higher weight and therefore estimating the rise of the cost of living for expatriates at a level between 3 % and 5 %, given the numbers above
- Correct adjustments of salaries based on specific regional numbers focusing on the rise of expatriate’s main cost factors such as the cash salary, benefits – accommodation, international schools, utilities or cars – and tax.