Key Things You Need to Know About Inflation and Your Global Mobility Program - Step 1 COLA

    Dec 09, 2022 @ 12:28 PM / by Adam Silver

    2022 Inflation GM Download-1

    How does inflation impact COLA?

    With inflation continuing to be a global issue, let’s review some key areas that inflation can impact your global mobility program and ways to address them! Step one - let's take a look at the cost of living allowance (COLA).

    Since COLAs are based on comparisons of prices in the home and host locations, high inflation can have a big impact on them and, therefore, on your assignees.

    Some important items to remember:

    • COLAs are impacted by inflation at host AND at home. Price changes at home can offset changes at host. Assignees often forget about home inflation since they are not experiencing it.

    • High host inflation can still have a big impact on your assignees as rising prices at host can make the COLA feel insufficient.

    • Exchange rate is also a factor — Inflation drives exchange rate changes and exchange rate changes can drive inflation. Often, high inflation in the host will be offset or partially offset by weakening of the host country currency, so COLA changes can be muted vs. assignee expectations.

    What can you do?

    Keep up with the pace!

    Review your COLA update schedule. Your data provider may be able to provide a more frequent update for volatile locations than your current schedule allows. AIRINC updates our allowances quarterly for volatile locations, so if you (or your data provider) have only an annual or semi-annual update, you could be lagging the market.

    Educate

    Make sure your assignees and business partners understand what the COLA is 
    intended to do, what it is not intended to do and, especially, how home and host inflation impact it. Additionally, ensure that they understand that exchange rates are also a factor, and they can be a counter-balancing factor to inflation.

    Understand your pay approach

    If you are paying in home currency, your assignees can be strongly impacted by differences between the market exchange rate and the rate used to calculate 
    the COLA. You may want to consider education or even mitigation steps. If you 
    are paying on a split or in host currency, your assignee’s host purchasing power is not at risk due to changes in the rate, but their savings and money on trailing 
    home expenses may be at risk if you are paying their salary fully in host and 
    the host currency is steadily depreciating vs. their home currency.

     

    Download the full paper now for details on how inflation and currency fluctuations can affect your global mobility program, as well as concrete steps you can take to maintain your assignment allowances.

     

    Download the Paper

     

     

    Interested to know more about how AIRINC tools can help you with your assignees' questions around their Cost of Living Allowance (COLA)?

    AIRINC's COLA Change Report provides the explanations that you need through a transparent personalized report that reflects the changes in an assignee’s specific COLA and visually explains the reasons behind the change.

    Contact us for more information or browse our Resource Center for more AIRINC reports and content!

     

     

    Read more from our blog AIRSHARE:

    Mobility Tax Developments in the U.K. Autumn Statement

    What is the Mobility Outlook for 2023?

    Currency Performance: Worst & Best in October 2022

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    Topics: Currency Volatility, COLA, Hyperinflation, Long-Term Assignment, Inflation, COLA Change Report, Expatriates

    Adam Silver

    Written by Adam Silver

    Adam Silver joined AIRINC in 2006 and currently serves as the Director for Client Engagement, North Central US. Adam has worked in Client Engagement at AIRINC for 14 years, partnering with AIRINC’s clientele across most industries to help provide data, consulting and support to help them reach their mobility goals. Adam received his BA from Wesleyan University and was an expatriate teaching English in Osaka, Japan from 2005-2006.