The composition of our reference basket of goods and services represents the spending habits of a three-person European family.
The prices of the 128 goods and services are weighted by monthly consumption. For example, we assume that a family in Europe consumes almost 23 kilos (50 pounds) of vegetables every month, but only buys a new TV every 4.5 years. Other people around the world do things differently, of course. So we incorporate local consumption patterns by emphasizing different types of food (i.e. Russians prefer tea to coffee, pork is generally not consumed in Tel Aviv).
The final price calculations are based on the cost of a basket of all goods and services including/excluding rent. For our index, these reference basket prices are shown relative to our reference city, New York City.
We display two columns: Prices excluding and including rents. Housing is the single largest cost for most people and, as such, can markedly influence the data.
Usually, prices excluding rent are higher than those including it. This seems counterintuitive until you realize that New York City is our reference. Its housing market is very expensive so, consecutively, cities "lose" price index points relative to it when including rents (i.e. they are cheaper). In the case of Hong Kong and Doha though, both cities rise in their price level when accounting for rent. Housing in these notable exceptions are relatively more expensive than our benchmark.