Calculating Cost of Living Allowances
The Defense Finance and Accounting Service calculates the cost of living in a particular area by using two surveys: the Living Pattern Survey and a Retail Price Schedule.
The Living Pattern Survey indicates how much servicemembers purchase at on post facilities, and how much they spend off post at local stores. The survey produces an average for a specific area. For example, in a specific area the survey may show that servicemembers but half of their products on post, and half on the local economy. This is only an average and may not apply to all servicemembers within that area.
Using this information and the Retail Price Schedule, shoppers will price 120 goods and services, everything from auto repair to zucchini, to compare their prices with equivalent goods and services in the US. If the overseas costs are higher than in the US, a COLA equal to the difference is paid.
When changes in spending patterns occur because of changes in the exchange rate, the Living Pattern Survey will be updated. The opening/closing of a commissary or an exchange may also prompt an update to the Living Pattern Survey.
Read more about this topic: Cost Of Living Allowance (U.S. Military)
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