Why is this place so expensive?

San Pedro hotel

My $62 (gulp) single room in San Pedro de Atacama, Chile

Even seasoned travelers sometimes end up in a travel destination that stumps them when it comes to costs. “I can’t believe how expensive this place is”—that’s a statement you’re not happy about uttering.

It’s a painful realization when you thought a place would, at worst, be on par with what things cost at home. Then you get there and start wondering where all your money is going.

It happened to me in the Atacama Desert region of Chile last year, I heard backpackers who came from Ecuador or Panama muttering about it in Cartagena, Colombia a few weeks ago. I’m sure lots of travelers are cursing in Brazil right now. Some are shocked when they find out how crazy expensive Australia has become, or how pricey Singapore is compared to the rest of Southeast Asia.

This is why a bit of pre-trip research is necessary. As I pointed out in the book Make Your Travel Dollars Worth a Fortune, most vacationers decide where they want to go and then try to fit that trip into their existing budget. That only works though if you know most of the costs up front, like on an organized tour, a cruise, or an all-inclusive vacation. Otherwise it’s backwards: the cost of the destination should match the budget you’ve got. Otherwise you’re scrimping and sweating over the restaurant tabs.

Keep one eye on (print or web) international news because these factors all play a part.

What makes a travel destination expensive?

1) The population is wealthy.
This is the main one. It’s not an exact correlation, but the higher the per capita GDP of a country, the higher prices are going to be. Think Japan, Luxembourg, Switzerland, and Denmark. When a country’s wealth rises quickly, as it has in Turkey, Thailand, and Brazil, prices are going to rise.

2) Taxes are high.

petrol price

The price of gasoline in Germany – per liter in euros

The United States is a rather inexpensive place to travel compared to Europe, not because we’re less wealthy, but because taxes are much lower. (We get less from our government too, but that’s another story.) If citizens pay a high percentage of their income in taxes or more than 10% on everything they purchase, that affects the price of everything, from food to fuel to hotel rates.

3) Labor laws are inflexible.
This is another good/bad factor: if all workers make a good salary, prices for taxis, restaurants, and goods in stores are higher. If those workers can’t be fired without an act of God, that means a very inefficient labor system too, which adds costs at every step of the transaction chain.

4) Distribution systems are inefficient.
Another reason retail prices in the U.S. are cheaper than in many developing countries is that we have a very lean distribution system. In Japan or Mexico there may be six people taking their cut between manufacturer and consumer—and a monopoly or duopoly on top of that. In efficient countries there’s less waste in the system and fewer middlemen. There’s also healthy competition: five wireless carriers instead of one, ten grocery story chains instead of two. Five hundred beer brewers instead of one.

5) The currency is out of balance.
The reason Brazil and Chile are expensive for travelers (besides the reciprocal visa fees) is the strength of their currencies. Both countries have been on an economic tear the past few years and lots of outside investment money has poured in. As commodity prices rise, countries that put out lots of commodities from under the ground (such as these, Canada, oil countries) see their currency vault up in a hurry.

6) Supply and demand.
Basic economics still applies. If every room in a destination is sold out for three months straight, good luck finding a deal on a hotel. Thus despite Italy’s economic clusterf&%k, you’re not going to find any bargains in Florence.

7) Everyone is out to rip you off.
Every time I read something about traveling in French-speaking West Africa, this is the main complaint. If you could pay the real price, it may actually be cheap to travel around. Since every person you come in contact is trying to charge you double what a local would pay, however, it’s a daily struggle that drives up costs. No fun.

Want to figure out where your money will really stretch instead, in places that are cheaper than where you live now? Pick up a copy of The World’s Cheapest Destinations at Amazon, B&N, Apple’s iBookstore, or the link top right for my publisher.


  1. coolnewz 03/20/2013
  2. Andreas Moser 03/21/2013

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