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Exchange rates and relative prices

Life, , — July 2010

I've adjusted to thinking in pounds and not converting prices to Australian dollars, at least for daily life. In Turkey, for example, I was converting lira to pounds, not to dollars, even though I was travelling with an Australian who was thinking in dollars.

Price comparisons are interesting, however, even if it makes no sense for me to consider ordinary items more expensive just because the Australian dollar has dropped 10% against the pound in the last month and a half. (I moved enough money in April to cover a large part of my likely expenses over the next three years, which looks now to have been good timing.)

A more stable comparison, and certainly a better one for cost-of-living comparison, is by incomes. The Office for National Statistics says that "median weekly pay for full-time employees in the UK grew by 2.0 per cent in the year to April 2009 to reach £489", which is £25,400 per year. The Australian statistics are for median household income and median individual income for all workers (not full-time), but this page estimates 2009 median full-time incomes as $59,500 for men and $47,500 for women. That suggests an "equivalent salary" exchange rate of perhaps 2.2.

This page does something slightly similar, looking at some specific occupations, and finds Australian salaries 31.7% higher at an exchange rate of 1.866. That converts to an exchange rate of 2.45, though the commentators go for 2.3.

For a different comparison, the UK basic pension, with the pension credit, is £130 a week for a single person and £198.45 for a couple. Australian singles get $644.20 a fortnight, couples $971.20. Which suggests an exchange rate of 2.48 or 2.45.

At an exchange rate of 2.4, I think the UK would be clearly more expensive than Australia -- or, at least, Oxford is more expensive than Sydney. At 1.75 - or even 1.6 - it's not so clear.

I will leave my ruminations on which city (or country) has the more overpriced housing to a later post.

1 Comment »

  1. [...] in the UK, overall, and would be much higher at more "normal" (historical) exchange rates (or in comparison to wages). (2) Letting a house in the UK while renting in Australia would be a better deal: on top of the [...]

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