Editing Purchasing power parity (section)

==Examples==
===Professional===
{{See also|List of countries by price level}}

====OECD comparative price levels====
Each month, the [[Organisation for Economic Co-operation and Development]] (OECD) measures the differences in price levels between its member countries by calculating the ratios of PPPs for [[household final consumption expenditure|private final consumption expenditure]] to exchange rates. The OECD table below indicates the number of US dollars needed in each of the countries listed to buy the same representative basket of consumer goods and services that would cost US$100 in the United States.

According to the table, an American living or travelling in Switzerland on an income denominated in US dollars would find that country to be the most expensive of the group, having to spend 27% more US dollars to maintain a standard of living comparable to the US in terms of [[Consumption (economics)|consumption]].
{{table alignment}}
{| class="sortable wikitable col2right col3right"
|-
! Country
!  Price level 2015 <br>(US = 100)<ref>as of 14 Apr 2015 {{cite web |url=http://stats.oecd.org/Index.aspx?DataSetCode=CPL |publisher=OECD |date=14 April 2015 |title=Monthly comparative price levels}}</ref>
!  Price level 2024 <br>(US = 100)<ref>as of 25 May 2024 {{cite web |url=https://data-explorer.oecd.org/vis?tm=Monthly%2520comparative%2520price%2520levels&pg=0&snb=3&df%5Bds%5D=dsDisseminateFinalDMZ&df%5Bid%5D=DSD_PPP_M%2540DF_PP_CPL_M&df%5Bag%5D=OECD.SDD.TPS&df%5Bvs%5D=1.0&lo=1&lom=LASTNPERIODS&dq=.M....&ly%5Brw%5D=REF_AREA&ly%5Bcl%5D=COUNTERPART_AREA%252CCURRENCY&to%5BTIME_PERIOD%5D=false&vw=tb |publisher=OECD |date=May 2024 |title=Monthly comparative price levels}}</ref>
|-
| Australia || 123
|96
|-
| Austria || 99
|82
|-
| Belgium || 101
|84
|-
| Canada || 105
|90
|-
| Chile || 67
|52
|-
|Colombia
|{{n/a|*}}No Data
|44
|-
|Costa Rica 
|{{n/a|*}}No Data
|67
|-
| Czech Republic || 59
|63
|-
| Denmark || 128
|105
|-
| Estonia || 71
|74
|-
| Finland || 113
|92
|-
| France || 100
|80
|-
| Germany || 94
|80
|-
| Greece || 78
|63
|-
| Hungary || 52
|55
|-
| Iceland || 111
|119
|-
| Ireland || 109
|104
|-
| Israel || 109
|105
|-
| Italy || 94
|73
|-
| Japan || 96
|69
|-
| South Korea || 84
|69
|-
|Latvia
|{{n/a|No Data}}
|64
|-
|Lithuania
|{{n/a|No Data}}
|59
|-
| Luxembourg || 112
|98
|-
| Mexico || 66
|65
|-
| Netherlands || 102
|84
|-
| New Zealand || 118
|93
|-
| Norway || 134
|92
|-
| Poland || 51
|51
|-
| Portugal || 73
|64
|-
| Slovakia || 63
|66
|-
| Slovenia || 75
|66
|-
| Spain || 84
|69
|-
| Sweden || 109
|87
|-
| Switzerland || 162
|127
|-
| Turkey || 61
|31
|-
| United Kingdom || 121
|95
|-
| United States || 100
|100
|}

=====Extrapolating PPP rates=====

Since global PPP estimates—such as those provided by the ICP—are not calculated annually, but for a single year, PPP exchange rates for years other than the benchmark year need to be extrapolated.<ref>{{cite journal |url=http://www.oecd.org/std/prices-ppp/2078177.pdf |title=Purchasing power parities – measurement and uses |author1=Paul Schreyer |author2=Francette Koechlin |date=March 2002 |number=3 |journal=Statistics Brief |publisher=OECD}}</ref> One way of doing this is by using the country's [[GDP deflator]]. To calculate a country's PPP exchange rate in Geary–Khamis dollars for a particular year, the calculation proceeds in the following manner:<ref>{{cite web|url=http://siteresources.worldbank.org/ICPINT/Resources/270056-1255977254560/6483625-1291755426408/18_ICPBook_Extrapolating_FINAL.pdf|title=Chapter 18: Extrapolating PPPs and Comparing ICP Benchmark Results|publisher=[[World Bank]]|work=[[International Comparison Program]]|author=Paul McCarthy|page=29}}</ref>

:<math>\textrm{PPPrate}_{X,i}=\frac{\textrm{PPPrate}_{X,b}\cdot \frac{\textrm{GDPdef}_{X,i}}{\textrm{GDPdef}_{X,b}}}{\textrm{PPPrate}_{U,b}\cdot \frac{\textrm{GDPdef}_{U,i}}{\textrm{GDPdef}_{U,b}}}</math>

Where PPPrate<sub>X,i</sub> is the PPP exchange rate of country X for year i, PPPrate<sub>X,b</sub> is the PPP exchange rate of country X for the benchmark year, PPPrate<sub>U,b</sub> is the PPP exchange rate of the [[United States]] (US) for the benchmark year (equal to 1), GDPdef<sub>X,i</sub> is the GDP deflator of country X for year i, GDPdef<sub>X,b</sub> is the GDP deflator of country X for the benchmark year, GDPdef<sub>U,i</sub> is the GDP deflator of the US for year i, and GDPdef<sub>U,b</sub> is the GDP deflator of the US for the benchmark year.

==== UBS ====

The bank UBS produces its "Prices and Earnings" report every three years.  The [https://web.archive.org/web/20190826165806/http://81.47.175.201/ETMS/rankings/2012_UBS_Prices_earnings.pdf 2012 report] says, "Our reference basket of goods is based on European consumer habits and includes 122 positions".<ref>{{cite web |title=Prices and Earnings (Edition 2012) |url=http://81.47.175.201/ETMS/rankings/2012_UBS_Prices_earnings.pdf |publisher=UBS |access-date=26 August 2019 |archive-url=https://web.archive.org/web/20190826165806/http://81.47.175.201/ETMS/rankings/2012_UBS_Prices_earnings.pdf |archive-date=26 August 2019 |url-status=dead }}</ref>

===Educational===

To teach PPP, the basket of goods is often simplified to a single good.

====Big Mac Index====
{{Main|Big Mac Index}}
{{more citations needed section|date=October 2023}}
{{stack|[[File:Big Mac hamburger - Japan (3).jpg|thumb|[[Big Mac]] [[hamburger]]s, like this one from [[Japan]], are similar worldwide.]]}}
The [[Big Mac Index]] is a simple implementation of PPP where the basket contains a single good: a [[Big Mac]] burger from [[McDonald's Corporation|McDonald's]] restaurants.  The index was created and popularized by ''[[The Economist]]'' in 1986 as a way to teach economics and to identify over- and under-valued currencies.<ref>{{Cite news |url=https://www.economist.com/big-mac-index |title=Our Big Mac index shows how burger prices are changing |date=2023-08-03 |newspaper=The Economist |access-date=2023-10-17 |archiveurl=https://web.archive.org/web/20231016151605/https://www.economist.com/big-mac-index |archivedate=2023-10-16}}</ref>

The Big Mac has the value of being a relatively standardized consumer product that includes input costs from a wide range of sectors in the local economy, such as agricultural commodities (beef, bread, lettuce, cheese), labor (blue and white collar), advertising, rent and real estate costs, transportation, etc.

There are some problems with the Big Mac Index.  A Big Mac is perishable and not easily transported.  That means the law of one price is not likely to keep prices the same in different locations.  McDonald's restaurants are not present in every country, which limits the index's usage.  Moreover, Big Macs are not sold at every McDonald's ([[Cattle slaughter in India|notably in India]]), which limits its usage further.<ref>{{Cite news |last=Anand |first=Shefali |date=2011-08-02 |title=India Ranks Low in Big Mac Index |url=https://www.wsj.com/articles/BL-IRTB-12201# |access-date=2025-02-13 |work=Wall Street Journal |language=en-US |issn=0099-9660}}</ref>

In the white paper, "Burgernomics", the authors computed a correlation of 0.73 between the Big Mac Index's prices and prices calculated using the Penn World Tables.  This single-good index captures most, but not all, of the effects captured by more professional (and more complex) PPP measurement.<ref name=Burgernomics />

''The Economist'' uses The Big Mac Index to identify overvalued and undervalued currencies.  That is, ones where the Big Mac is expensive or cheap, when measured using current exchange rates.  The January 2019 article states that a Big Mac costs HK$20.00 in Hong Kong and US$5.58 in the United States.<ref name=":0">{{Cite news |url=https://www.economist.com/news/2019/01/10/the-big-mac-index |title=The Big Mac index |date=2019-01-10 |newspaper=The Economist |access-date=2019-07-02 |issn=0013-0613 |archiveurl=https://web.archive.org/web/20190701094922/https://www.economist.com/news/2019/01/10/the-big-mac-index |archivedate=2019-07-01 }}</ref> The implied PPP exchange rate is 3.58 HK$ per US$. The difference between this and the actual exchange rate of 7.83 suggests that the Hong Kong dollar is 54.2% undervalued.  That is, it is cheaper to convert US dollars into Hong Kong dollars and buy a Big Mac in Hong Kong than it is to buy a Big Mac directly in US dollars.{{citation needed|date=October 2023}}

====KFC Index====
{{Main|KFC Index}}

Similar to the [[Big Mac Index]], the [[KFC Index]] measures PPP with a basket that contains a single item:  a [[KFC]] Original 12/15 pc. bucket. The Big Mac Index cannot be used for most countries in Africa because most do not have a McDonald's restaurant.  Thus, the KFC Index was created by Sagaci Research (a [[market research]] firm focusing solely on Africa) to identify over- and under-valued currencies in Africa.

For example, the average price of KFC's Original 12 pc. Bucket in the United States in January 2016 was $20.50; while in Namibia it was only $13.40 at market exchange rates. Therefore, the index states the Namibian dollar was undervalued by 33% at that time.

====iPad Index====
Like the [[Big Mac Index]], the iPad index (elaborated by [[Commonwealth Securities|CommSec]]) compares an item's price in various locations. Unlike the [[Big Mac]], however, each iPad is produced in the same place (except for the model sold in Brazil) and all iPads (within the same model) have identical performance characteristics. Price differences are therefore a function of transportation costs, taxes, and the prices that may be realized in individual markets. In 2013, an iPad cost about twice as much in Argentina as in the United States.

{| class="sortable wikitable"
|-
! Country or region !! Price<br>(US dollars)<br><ref>{{cite web|url=http://www.theage.com.au/business/markets/is-the-aussie-too-expensive-ipad-index-says-no-20130923-2u9jj.html|title=Is the Aussie too expensive? iPad index says no|author=Glenda Kwek|work=The Age|date=23 September 2013}}</ref><ref>{{cite web |url=https://northremovals.com.au/melbourne-vs-ballarat-cost-of-living/ |title=Melbourne vs. Ballarat: Cost of Living, Jobs, and Lifestyle Comparison |author=Joaquin Trapero |date=12 December 2024 |access-date=2025-02-08}}</ref><ref>[https://www.comsec.com.au/] ''[[Commonwealth Securities]]'' 23 September 2013</ref><ref>{{cite web |url=http://www.businessinsider.com/how-much-an-ipad-costs-in-46-countries-2013-9 |title=Here's How Much An iPad Costs In 46 Countries |author=Liz Tay |publisher=Business Insider Australia |date=September 23, 2013 |url-status=live |archive-url=https://web.archive.org/web/20231023104312/http://www.businessinsider.com/how-much-an-ipad-costs-in-46-countries-2013-9 |archive-date= Oct 23, 2023 }}</ref>

|-
| Argentina || $1,094.11
|-
| Australia || $506.66
|-
| Austria || $674.96
|-
| Belgium || $618.34
|-
| Brazil || $791.40
|-
| Brunei || $525.52
|-
| Canada (Montréal) || $557.18
|-
| Canada (no tax) || $467.36
|-
| Chile || $602.13
|-
| China || $602.52
|-
| Czech Republic || $676.69
|-
| Denmark || $725.32
|-
| Finland || $695.25
|-
| France || $688.49
|-
| Germany || $618.34
|-
| Greece || $715.54
|-
| Hong Kong || $501.52
|-
| Hungary || $679.64
|-
| India || $512.61
|-
| Ireland || $630.73
|-
| Italy || $674.96
|-
| Japan || $501.56
|-
| Luxembourg || $641.50
|-
| Malaysia || $473.77
|-
| Mexico || $591.62
|-
| Netherlands || $683.08
|-
| New Zealand || $610.45
|-
| Norway || $655.92
|-
| Philippines || $556.42
|-
| Pakistan    || $550.00
|-
| Poland || $704.51
|-
| Portugal || $688.49
|-
| Russia || $596.08
|-
| Singapore || $525.98
|-
| Slovakia || $674.96
|-
| Slovenia || $674.96
|-
| South Africa || $559.38
|-
| South Korea || $576.20
|-
| Spain || $674.96
|-
| Sweden || $706.87
|-
| Switzerland || $617.58
|-
| Taiwan || $538.34
|-
| Thailand || $530.72
|-
| Turkey || $656.96
|-
| UAE || $544.32
|-
| United Kingdom || $638.81
|-
| US (California) || $546.91
|-
| United States (no tax) || $499.00
|-
| Vietnam || $554.08
|-
|}