The falling-currency trap: why a weak exchange rate is not a cheap trip

Every few months a headline announces that some currency has "collapsed" and that now is the time to visit. Sometimes it is true. Often the traveller lands, opens a menu, and finds that prices climbed faster than the currency fell.

The reason is simple, and it is the idea the whole index is built on.

Two numbers, not one

What a trip costs you depends on two things: how much local currency you get for your money, and what that local currency buys. A currency converter only shows the first.

Take Türkiye. Over the past twelve months a US dollar came to buy 19.0% more lira. Over the same period, prices inside Türkiye rose by roughly 30%. Put the two together and a dollar buys 6.5% less there than it did a year ago. The currency fell, and the country got more expensive.

Argentina is the sharper case. The peso weakened 9.5% against the dollar while local prices rose by about a third, leaving the country 15.2% dearer in real terms. Against its own five-year average, Argentina is now about 30% more expensive for a dollar earner, which is why travellers who remember it as a bargain keep being surprised.

We call these mirages, and the index currently counts four of them.

When the drop is real

The opposite also happens: a currency slips and local prices barely notice. That is a real discount.

Indonesia is the clean example today. The rupiah is 9.3% weaker against the dollar than a year ago and inflation there has been low, so almost all of it survives: a real gain of 9.6%.

Egypt sits in between. The pound fell 13.5%, but inflation took most of it back, leaving a real gain of 2.8%. Better than nothing, and nowhere near what the exchange rate suggests.

Then there is the slow kind. Japan is only 4.9% cheaper than a year ago, which sounds modest. Measured against its own five-year average, though, it is about 20% cheaper, because the yen fell a long way and Japanese prices hardly moved. A one-year window misses that. This is why the index looks at both.

What to do with this

• Ignore the converter, look at the real rate. Every country page shows two lines: the exchange rate alone, and the same thing after inflation. When they diverge, trust the second.
• Check the direction of the last three months. A real gain that is already reversing is a reason to book sooner or not at all.
• Remember what the number leaves out. Hotels and tours in many countries are priced in dollars or euros regardless of the local currency. A real-terms gain shows up fastest in food, transport and anything sold to locals.
• Ask why it is cheap. A currency in free fall is often a symptom of something that also makes a country harder or riskier to visit. The index marks countries down for that, and so should you.

The full table, re-priced for the currency you earn in, is on the index. How the figures are calculated, and where they can be wrong, is set out in the method.