Recent currency performance reflected contrasting macroeconomic conditions and policy credibility.
The Hungarian forint appreciated as high interest rates attracted capital inflows, supported by easing inflation, improved external financing conditions, and a smaller current account deficit that strengthened investor confidence.
By contrast, the Venezuelan bolivar continued to weaken under persistent inflation, limited export revenues, and widespread preference for U.S. dollars, with fragile economic fundamentals and low policy trust outweighing modest political optimism.
The Hungarian forint’s recent appreciation was driven by high interest rates, which made it more attractive than lower yielding currencies and encouraged investors to buy forint denominated assets. These capital inflows increased demand and helped support the currency’s rise. Lower inflation improved confidence that the central bank could maintain a stable and credible policy stance.
At the same time, better access to external financing made it easier for Hungary to fund itself abroad. A smaller current account deficit reduced concerns about the country’s ability to meet foreign payment needs. Supportive global risk sentiment and investors’ search for higher returns also contributed to the forint’s appreciation.
The Venezuelan bolivar continues to perform poorly, with high inflation and rising prices weakening its value. The general population of Venezuela increasingly prefers the use of U.S. dollars over the local currency, but limited dollar availability in the economy adds further issues.
Export revenues continue to be insufficient, weakening the economy further, although there has been some recent improvement. Although the partial reconstruction of the previous government has provided some optimism, there remains general mistrust due to lack of progress.
Currency fluctuation can have a direct impact on international assignment compensation, especially when an employee is paid through a home-based approach. Because COLA compares the cost of goods and services between home and host locations, exchange rates are used to facilitate that comparison. When exchange rates move, the COLA may need to be updated to help maintain the assignee’s purchasing power.
However, exchange rates are not the only factor. Inflation or deflation in either the home or host location can also change the amount of support needed. That means a COLA may increase, decrease, or stay the same depending on how these factors interact.
For example, an assignee may see their COLA decrease even if prices feel higher in the host location, because a favorable exchange rate or other economic change may reduce the overall differential. This can be confusing without the right explanation.
AIRINC’s COLA Change Report helps mobility teams make that explanation clearer. The report shows what changed and why, giving assignees a transparent view into the data behind their allowance. It is especially helpful when mobility teams need to explain the combined impact of exchange rates, inflation, timing, and salary adjustments.
A Cost of Living Allowance, or COLA, is an ongoing allowance for employees on international assignments. It is designed to protect employees from excess goods and services costs in the host location compared with the home location.
COLA is based on a market basket of goods and services. AIRINC’s Education Knowledge Base notes that this often includes categories such as food at home, household supplies, personal care, clothing, medical care, transportation, recreation and entertainment, food away from home, alcohol, and tobacco. Items such as taxes, housing and utilities, education, and automobile purchases are often excluded and handled separately by the employer.
AIRINC explains that there are two key components in establishing the COLA: the employee’s spendable income and the Cost of Living Index. The spendable income is the portion of salary spent on goods and services, while the Cost of Living Index shows the relative cost difference between the host and home locations.
COLA can change because economic conditions change. Since COLA compares costs between home and host locations, exchange rates are applied to keep the allowance current. Inflation and deflation in the home and host market baskets can also affect the calculation.
Yes. A COLA can increase when more support is needed, but it can also decrease when less support is needed. This can happen because of exchange rate movement, inflation or deflation, or other changes in the underlying calculation.
COLA decreases can feel counterintuitive to employees, especially if they are still seeing high prices in the host location. That is why communication matters. Mobility teams need to explain that COLA is not a fixed payment or bonus; it is a data-driven allowance that responds to changing home and host conditions.
AIRINC’s COLA Change Report provides a personalized report that explains changes in an assignee’s specific COLA amount. It answers questions about exchange rate impact, inflation in the home and host locations, the time period measured, and other factors such as salary adjustments.
Explore AIRINC’s COLA Education Knowledge Base to learn the basics, or see how the COLA Change Report can help your team explain allowance changes more clearly.