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Cost of Living Index

Description: 

The cost of living is a factor considered by both companies and individuals when making relocation decisions. All other factors equal, a lower cost of living is a positive feature, but a low cost of living often is associated with a weak economy and/or a subpar quality of life.

The ACCRA Cost of Living Index measures the cost of living in communities across the country by gauging the costs of groceries, housing, transportation, utilities, health care, and miscellaneous other goods and services—a typical market basket of goods and services. Taxes are not included. The index is designed for “moderately affluent professional managerial households.” Household income is assumed to be in the top quintile. The data are presented as an index relative to the national average. Participation in this study, which is conducted by local chambers of commerce, is voluntary. An index is produced for each of the first three quarters of the calendar year, with an annual average also computed.

Annual averages back to 1997 of the composite cost-of-living index and the index for the housing category are shown on Arizona Indicators for Phoenix and Tucson. Additional places in Arizona participate in the study, but state-level data are not available.

Data Source: 

The Council for Community and Economic Research (C2ER). While the source maintains a website (http://www.coli.org), the data are available only on a subscription basis. The report is available at many libraries. The data are released about three months after the end of a quarter.

Data Quality Comments: 

While participating chambers of commerce must adhere to published standards, the study involves considerable sampling and the sampling is not done scientifically. Thus, bias is a concern. A confidence interval cannot be calculated because of the reliance on nonprobability samples. The C2ER suggests that differences of 3 percentage points in the composite index, and 5 percentage points in the component indexes, should not be considered to be significant. The list of participants changes each quarter; the national average is determined from the participants in each quarter.

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Visualization Notes:

From 1997 through 2010, the overall cost of living in Arizona’s two large metropolitan areas generally was within 3 percentage points of the national average—that is, not significantly different from the U.S. average. The cost of living in the Tucson area relative to the Phoenix area has ranged from about the same as to slightly below, but nearly always has been within 3 percentage points. A weak cyclical pattern exists in Arizona, in which living costs relative to the national average are highest during economic expansions and lowest during and shortly after recessions.

Since the Phoenix area’s average wage and cost of living both are quite close to the national average, its average wage adjusted for living costs also is about equal to the U.S. average. In contrast, the average wage in the Tucson area is more than 10 percent below the national average but its living costs are barely below average, meaning that its average wage after adjusting for living costs is significantly below average.

The housing category of the cost-of-living index is of particular importance in relocation decisions and accounts for nearly 30 percent of the composite index. The annual housing indexes are volatile and account for most of the cyclicality in the composite index.

From 1997 through 2010, housing costs in the Phoenix metropolitan area have followed a strong cycle, from as much as 13 percent below average following the 2001 recession to 7 percent above average at the end of the housing boom in 2006 to 10 percent below average in 2010. Housing costs also have followed a cycle in the Tucson metro area, but have been below the national average in every year. In most years from 1997 through 2007, housing costs in the Tucson area were more than 5 percentage points lower than in the Phoenix area, signifying a statistically significant difference, but were marginally higher in 2009 and 2010.

Data Source

The Council for Community and Economic Research (C2ER). While the source maintains a website (http://www.coli.org), the data are available only on a subscription basis. The report is available at many libraries. The data are released about three months after the end of a quarter.