Zurich, 15 June 2022 – Using its wide-ranging Lifestyle Index, Julius Baer tracks prices and consumer behaviour around the world to gauge the price inflation of a basket of goods and services representative of the high-net-worth-individual (HNWI) lifestyle in cities around the world. With this, investors can estimate the portfolio returns needed to preserve, or even grow, their purchasing power. This is the third edition of the report with a global scope.
For the first time, the report also includes a Lifestyle Survey that asks HNWIs across the world about their consumption, spending, and investment habits. The results offer a deeper understanding of the lifestyle trends identified by the Lifestyle Index and support the findings with personal sentiments.
Nicolas de Skowronski, Head Wealth Management Solutions and Member of the Executive Board of Julius Baer said: “Ongoing global uncertainty, prompted first by the pandemic and now further exacerbated by geopolitical tensions, as well as rising inflation have only sharpened the need for investors to protect their purchasing power and, in the long term, actively plan to preserve their wealth.”
Christian Gattiker, Head of Research, Julius Baer, added: “Our Lifestyle Index is an important indication of the personal inflation rates for HNWIs. These are based on where they live, the products and services they buy, and even their interests. Combining these with a sound wealth management strategy can help stem this erosion, and preserve and even grow wealth under the current conditions.”
Key trends identified by the Lifestyle Survey of HNWIs
The Lifestyle Survey of HNWIs reveals regional differences in how optimistic respondents feel about their personal, professional, and financial futures. It indicates a strong intention to return to experiential spending on leisure activities and travel, but also a greater focus on areas that might enable them and their children to plan in the years ahead, such as health insurance, wellness, and education.
Another trend is how HNWIs are increasingly aligning their financial and investment decisions more closely with their personal values. In all regions, sustainability is a very, if not extremely, important consideration for most respondents. HNWIs generally want to promote sustainability through investments, which is why ESG plays an increasingly important role when it comes to investment decisions.
Julius Baer Lifestyle Index
The enduring effects of the pandemic, which is still an ongoing crisis in some countries, combined with a challenging set of macro-economic conditions and supply chain disruptions, has caused price rises for 75% of the goods and 63% of the services in the Julius Baer Lifestyle Index.
The weighted average of prices increased by 7.46 percent in the last year, compared to an increase of only 1.05 percent in the previous edition of the report. Supply chains, already strained by the pandemic, were put under further pressure by the war in Ukraine, leading to a rise in commodity prices and shortages in key consumer industries.
Inflation is rising globally and affecting consumers’ purchasing power everywhere. In line with the trends observed last year, there was an increased focus on where HNWIs are located – stability, security, and cost of living have all become decisive factors. Additionally, HNWIs have a stronger desire to do more with their own wealth and go beyond purchases to have a positive impact on society. Sustainability, ESG and philanthropy considerations continue to grow in importance.
Selected regional findings of the Julius Baer Lifestyle Index
The Lifestyle Index changes to reflect the evolving world of high-end consumption. This year no new items were added to the basket of goods and services, however the models were updated for both cars and the technology package.
Asia is the most expensive region to buy a car, which is the single most expensive item in the basket. Shanghai is still the most expensive city in the index with four items ranked at the very top and the highest weighted-average price increase (30%). Taipei (3rd) moved up the ranking, mostly due to the prices of shoes, bicycles, and wine. Although Asia remains the most expensive region overall, Tokyo (8th) is also the city which slid the furthest (previously 2nd), driven by 13 items ranking lower than in the previous year and an average depreciation of -8.8% on the Japanese yen.
Americas is still the most affordable region to live well. Cars and residential property are far less expensive compared to other regions. The biggest riser in the Americas is Sao Paulo (12th, previous year 21st), which experienced price increases of 27%, largely driven by record inflation, high import tariffs and taxes. New York is home to six of the most expensive items and residential properties there are 119% more expensive than the regional average. On the other hand, Mexico City has the least expensive residential properties, 72% cheaper compared to the regional average.
The Covid-19 pandemic, rising inflation and increased geopolitical tension have resulted in a sharp rise in prices overall but particularly in Europe, where the tourism sector has been strongly affected. While flights in Europe were generally more expensive than in other regions, hotel suites are almost twice as expensive as in Asia. A case in point is London (2nd, previous year 8th), where prices for hotel suites are 162% higher than the global average. Beside hotel suites, three further items from this year’s basket are the most expensive in London.
Johannesburg has lost its relative rank as the most affordable place to live well in the 2022 Index, despite five items showing lower prices than last year. The only African city represented in the ranking lost this title to Mumbai, where residential property is almost 60% cheaper than the global average.