Cost of living: Which are the cheapest and most expensive countries in Europe?

Yahoo

2 days ago

Prices vary significantly between countries in Europe. Significant differences exist even between neighbouring countries such as Austria and Hungary — or Germany and Poland.
But how can we best compare prices across Europe? And what are the most expensive and cheapest countries across the continent?
Price level indices are a good way to help us understand how expensive or cheap goods and services are in each country. They compare national price levels to the EU average and are calculated using Purchasing Power Parities (PPPs).
According to Eurostat, PPPs act like an artificial common currency, as they show how much people can buy with the same amount of money across countries.
The results are based on price surveys covering more than 2,000 consumer goods and services, conducted across 36 European countries.
There are several price level indices that compare the cost of different goods and services — such as food, drink, clothing, hotels, and more. In addition to these individual or group indices, there are two main indicators that show the 'overall' price level of consumer goods and services:
One is actual individual consumption (AIC), which measures all goods and services actually consumed by households. It includes consumer goods and services purchased directly by households, as well as services provided by non-profit institutions. The indicator also includes services provided by the government for individual consumption such as health and education services.
Another indicator is household final consumption expenditure (HFCE), which studies total spending on individual goods and services by resident households.
In other words, AIC looks at what households use — including services they don't directly pay for — and HFCE shows what they spend money on.
Eurostat notes that AIC is often used in international comparisons, as it captures more than the narrower concept of household consumption. Euronews has therefore used AIC figures for comparisons, although consumption data is also included in the chart.
As of 2024, out of 36 countries, Switzerland is the most expensive, with prices at 184% of the EU average — 84% higher than the average.
Turkey is the cheapest, with prices at 47% of the EU average, meaning they are 53% lower than the EU average.
This makes Switzerland 3.9 times as expensive as Turkey, revealing the sharp contrast in price levels across Europe.
A price level above 100 means a country is more expensive than the EU average; below 100 means it's cheaper.
In the EU, Luxembourg is the most expensive country, with prices 51% higher than the EU average.
Bulgaria and Romania are the cheapest members, at 57% of the EU average.
This means Luxembourg is about 2.7 times as expensive as Bulgaria and Romania, showing a significant but smaller gap compared to the difference between Switzerland and Turkey.
Ten EU countries have prices above the EU average. Denmark (143%) and Ireland (141%) follow Luxembourg as the most expensive.
Among the EU's four largest economies, Germany (109%) and France (108%) are slightly above average, while Italy (98%) and Spain (91%) are below.
Western and Northern European countries tend to have high price levels. Switzerland, Iceland, Luxembourg, Denmark, Ireland, Norway, and Finland all show significantly above-average prices. These are generally high-income countries with strong currencies and higher living costs.
All five Nordic countries— Denmark, Finland, Sweden, Norway, and Iceland — also consistently rank near the top.
In contrast, Central and Eastern European countries generally have lower price levels. Romania, Bulgaria, Hungary, Poland, and the Baltic States — Latvia, Lithuania, and Estonia — are all below the EU average. These regions typically record lower labour costs.
Price levels are also lower in the EU candidate countries. They included Turkey, North Macedonia, Albania, Serbia, and Bosnia and Herzegovina.
Two European Free Trade Association (EFTA) countries — Switzerland and Iceland —rank first and second in 2024, with Norway in sixth place.
In a 2018 analysis based on 2017 figures, Lars Svennebye of the EFTA Statistical Office explained that high workforce productivity and corresponding high salaries were key factors behind the high price levels in EFTA countries.
Filippo Pallotti, PhD Candidate in Economics at University College London, told Euronews Business that across Europe, the most expensive countries to live in tend to be the most productive. 'Productivity gains in tradable sectors (like manufacturing and tech) drive up wages economy-wide - even in non-tradable sectors such as hairdressing, hospitality, and real estate, where productivity growth is slower,' he said.
Comparing the highest and lowest ends of the EU, Pallotti pointed out that hourly labour costs mirror price levels — around €55 in Luxembourg, €50 in Denmark, and just €11 in Bulgaria. 'But when comparing coffee at €4 in Copenhagen versus €1 in Sofia, it's the interplay of strong tradable-sector productivity and the resulting elevated wages across all sectors that chiefly explains the gap." he added.
Pallotti also noted that beyond wages, productivity itself stems from several key factors: capital intensity, technology adoption, human capital, institutional quality, infrastructure, and foreign investment - including skilled management and talent inflows. Other contributing factors - VAT and indirect taxes, cost of regulation, urban density, transport infrastructure, and even currency valuations - play roles in shaping prices.
Individual or household incomes are not included in price level comparisons. 'These figures are pure price comparisons of goods and services. They do not take the level of wages, salaries or other measures of personal income into account,' Lars Svennebye told Euronews Business.
This means that someone living in a country with a high price level may still be able to buy more goods and services than someone in a country with a lower price level, depending on income.
Price levels vary significantly across different categories. For example, the price level for alcohol and tobacco in the EU was nearly three times higher in Ireland (205%), the most expensive country, than in Bulgaria (69%), the cheapest.