International comparison of prices

Purchasing power parities (PPP) indicate how many units of a currency have to be paid for a specific volume of goods and services in different countries.

Purchasing power parities are calculated to convert macroeconomic aggregates such as the gross domestic product into a uniform currency and thus make them comparable internationally. In order to achieve coherence with the macroeconomic aggregates to be compared, not only prices of goods and services of public and private consumption but also of machinery, equipment and construction operations are collected in accordance with the System of National Accounts.

The delimitation by household final consumption expenditure considers the expenditure of all domestic households on goods and services used to directly satisfy individual needs.

• PPPs can in particular be used to compare the gross domestic products (GDP) of different countries without the figures being distorted by the different price levels in these countries.
• To analyse relative price levels of individual countries or groups of countries, the purchasing power parities can be used to calculate price levels for individual countries. The PPP is divided by the nominal exchange rate to calculate the price level.

The calculation of purchasing power parities is not based on a uniform (for instance German) weighting pattern. The basis are weighting patterns derived from the representative consumption patterns in the respective countries.

In the delimitation by household final consumption expenditure, they are suited for comparing costs of living as this considers all goods and services which households consume and also pay for.

It should be noted, however, that the calculation of purchasing power parities is always based on the respective domestic consumption pattern and not the German one.

The tables provide purchasing power parities and price levels related to household final consumption expenditure which are updated monthly.

Like exchange rates, purchasing power parities are published as [units of foreign currency per unit of domestic currency], with a basic currency being defined as domestic currency. However, as neither Eurostat nor the OECD or the World Bank use the euro as basic currency (Eurostat uses an artificial currency called purchasing power standard (PPS), while the OECD and the World Bank use the dollar), a direct relation between the two purchasing power parities of the countries to be compared must be calculated before any amount in (German) euros can be converted.

For examples of how to convert salaries, maintenance payments or training assistance (BAföG) please refer to Methods.

When it comes to purchasing power parities, the Big Mac Index is regarded as an example which can easily be understood. It is however not suited as a means for measuring the purchasing power of currencies precisely and was never meant to be used as such. There is criticism, for instance, that this index can change much more easily than a standardised basket of goods. There also are considerable differences regarding salaries and transport costs, which are not included, and the burgers are neither available nor the same all over the world.