CONVINUS Global Mobility Alert - Week 1.2023

G l o b a l M o b i l i t y : H o w d o e s
i n f l a t i o n i m p a c t y o u r C o s t o f
L i v i n g A l l o w a n c e s ?
As a global mobility professional, have you changed your approach to Cost of Living Allowances in light of inflation? If not, it
may be time to take a closer look at how this worldwide issue can impact your allowances. Here are some key concepts to
keep in mind:
High inflation in the host country can have a big impact on the expatriate, as rising prices in the host country can cause
the COLA to be insufficient.
Exchange rates must also be taken into account. High inflation in the host country is usually (partially) offset by a
weakening of the host country's currency.
The cost of living is affected by inflation in the home AND host country. However, price changes in the home country can
offset changes in the host country. Expatriates tend to forget about inflation in their home country if they do not
experience it themselves.
What can you do?
Keep up with the pace! - Review your COLA update schedule regularly. In volatile locations, a quarterly update may be
required instead of an annual review.
Inform! - Make sure your employees and business partners know how home and host country inflation affects the COLA.
Also, make sure they understand that exchange rates can offset the impact of inflation for expatriates.
Understand your compensation approach. If the company pays in the home currency, differences between the market
exchange rate and the rate used to calculate the COLA can have a major impact on expatriates. However, if the company
pays in the host currency, the international employee's purchasing power in the host country is not at risk from
exchange rate changes. On the other hand, savings and expenses in the home country may be at risk if your company
pays the salary entirely in a host currency that depreciates in value.
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