Geneva retained its ranking as the world's fifth most expensive city for expats, while Zurich moved up one place to sixth and the Swiss capital, Bern, gained two spots to 14 following the strengthening of the franc against the dollar. Karachi is the least expensive city for expats, less than a third as costly as Tokyo, Mercer said.

Most European cities dropped in the ranking, mainly due to what Mercer called a “considerable weakening” of local currencies against the dollar. The euro has lost 3.9 percent in the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Oslo fell to 18 from 15 in the rankings, London dropped to 25 from 18 and Paris slipped 10 places to 37. Milan, Rome, Stockholm, Vienna, Amsterdam, Brussels and Dublin all lost between seven to 14 places.

“Despite some marked price increases across the region in the first half of last year and widespread increases in VAT charges, most European cities dropped in the ranking,” said Nathalie Constantin-Metral, who compiled the data. “This is mainly due to the unstable economic situation across Europe, which has led to the depreciation of most local currencies against the dollar.”

Rental accommodation prices have slid in Greece and Spain, which required international bailouts, as well as in Italy, Constantin-Metral said.

Bucking the Trend

Most British cities also slipped in the ranking as the British pound fell against the dollar, said Milan Taylor, head of Mercer's data and product services in the U.K. and Ireland.

“Birmingham and Belfast bucked the trend, moving up in the ranking mainly because rental costs for expatriates increased a fair bit and price increases in these cities were higher than in, say, London and Glasgow,” Constantin-Metral said in a statement.

Tel Aviv remains the costliest city for expatriates in the Middle East, though it dropped seven places to 31, while Jeddah, Saudi Arabia, is still the cheapest in the region, at 186. Johannesburg fell 23 places to 154 and Cape Town lost 21 to rank 179, “reflecting the considerable weakening the South African rand has suffered against the U.S. dollar in the last year,” Mercer said.

Higher consumer prices also helped catapult Caracas, Venezuela, up 22 places to 29 in the ranking, though Sao Paulo and Rio de Janeiro, at 12 and 13, remain the most expensive cities for foreigners in the Americas. Venezuela's annual inflation rate stood at 22.6 percent in May.

Osaka, Japan's third-largest city, advanced three places to No. 3, followed by Singapore at 6 and Hong Kong at 9. Higher prices for goods and a stronger yuan pushed Chinese cities including Shanghai, Beijing, Shenzhen and Guangzhou up in the rankings, Constantin-Metral said.

In New Zealand, both Auckland and Wellington jumped a “very significant” 62 places following “large increases in accommodation cost and demand, coupled with a stronger New Zealand dollar,” she said. “Demand for rental properties has also increased significantly in all the Australian cities we rank. Coupled with very limited availability, the result has been very tight markets and increased prices.”

Along with Karachi, the cheapest cities for expatriates are Islamabad, Pakistan; Managua, Nicaragua; Bishkek, Kyrgyzstan; La Paz, Bolivia; Tunis; and Kolkata, India, according to Mercer.

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