Purchasing power parities (PPPs), price level indices and real expenditure
Purchasing power parities (PPPs) are indicators of price level differences across countries. The PPPs are calculated by Eurostat and the OECD with the price and expenditure data that countries participating in the Programme supply specifically for the calculation.
Terms and definitions
Purchasing Power Standard (PPS)
PPS is an artificial currency unit, which is used within the European Union in order to express summary economic indicators, as well as carry out spatial comparisons, by eliminating price differences among member states.
"Actual expenses" or "expenses expressed in PPS" characterise an aggregate of expenses, e.g. GDP or actual individual consumption, which has been recalculated in a uniform and technical currency (PPS) with a uniform price level, by using PPP.
Purchasing power parity (PPP)
PPPs reflect the level of prices in different countries. They allow measuring the value of currencies used in national economies on the basis of the amount of goods and services that can be purchased for the currency of the respective state.
PPPs are spatial price deflators and currency converters that equalise the differences in the price levels of different countries, thus making it possible to compare their GDP indicators. If comparisons are made by using the nominal currency exchange rate, the GDPs of countries with a high price level is revalued, unlike for countries that possess a low price level. The use of PPPs ensures that the same price level is used in the evaluation of GDPs of all countries, thus reflecting only the changes in the actual economic volume.
PPPs are also used when analysing relative price levels between countries. The PPP of a specific country indicates how much of its national currency is required to ensure the purchasing power of one euro within the respective country.
Price level indices in PPP calculations
PPPs are also used for comparing the price levels of different countries. For this purpose the purchasing power parity of a specific state is divided by the nominal currency exchange rate, thus acquiring a price level index (PLI). A PLI allows comparing the price level of a specific country with another country or a group of countries, for example, with the EU-28.
If the index of a certain country is above 100, it means that the prices within the respective country exceed the average EU level.
Purchasing power parity programme
The calculation of PPSs is ensured by the PPP programme. The statistical surveys included within the programme are coordinated and managed by Eurostat, the Organisation for Economic Co-operation and Development (OECD), and the International Bank for Reconstruction and Development or the World Bank (on behalf of the United Nations).
Results of the programme at international scale are compiled by the World Bank.
Eurostat compiles and publishes on its website those volume indices of GDP per capita, which are indicated in PPS units. The respective indices are usually applied to the average European Union level (EU28 = 100) or a different group of countries.
Press releases that reflect volume indices of GDP per capita are published twice per year (in June and December), whereas price level indices for household final consumption expenditures are published once per year.
"Statistics Explained" articles:
- GDP per capita, consumption per capita and price level indices
- Consumer prices - inflation and comparative price levels
- Comparative price levels of consumer goods and services
- Price levels by consumption groups
- Price levels by area
- Consumer prices - detailed average prices
Dedicated section on PPPs is published in Eurostat website.
Eurostat also publishes price level indices in separate consumption groups, for example, on food products and beverages. The published results are available on the Eurostat homepage.
The Central Statistical Bureau ensures the following information for PPP calculations:
- On household consumption: 6 different household consumption surveys, which are carried out over a period of 3 years according to a rolling schedule (2 surveys per year). Once per year – household survey on rental indicators.
- On general government consumption: wages and salaries of public sector employees (annual survey), statistical indicators of hospital services (annual survey).
- Gross fixed capital formation: survey on the prices of machinery and equipment (once in two years). Survey on the prices of construction projects – once per year. Detailed structure of GDP use and other additional information – once per year.
Data required for PPP calculations on general government expenditures for education are extracted by Eurostat from the UNESCO-OECD-Eurostat database (once per year).
Eurostat carries out calculations every year. The peculiarity of the respective surveys hides in the correlation of the information provided by the countries involved in the comparisons and its impact on the results. Unlike in other statistical surveys, an individual country may not obtain comparison results on its own, and changes in the data of one country also affect the results of other countries.
Results of the Comparison Program may be reviewed after the publication of the final results. In order to ensure maximum conformity with the latest national account calculations, all PPP time series are recalculated twice per year – in June and December. The required changes are also made in the databases.
PPPs are produced in accordance with the final expenditure classification of the European Standard of Accounts (ESA 2010).
Purchasing power parities are classified by type of final expenditure – actual individual consumption expenditure, actual collective consumption expenditure and capital expenditure - and, in the case of actual individual consumption expenditure, by purchaser - households, non-profit institutions serving households (NPISHs) and general government. The prices underlying the calculation of PPPs adhere to the definitions, concepts, classifications and accounting rules of ESA 2010.