Purchasing Power Parities (PPP)

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Prices and Consumption, Economic Statistics
Zdravka Bosanac
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Purchasing Power Parities (PPP) 2023

PPP tells how many currency units a given amount of goods and services cost in different countries. The statistics are used, among other things, to convert countries' gross domestic product (GDP) into comparable figures and for analyses of expenditure levels. Denmark has participated in the work on purchasing power parities since the 1970s, but the statistics in their current form are comparable from 2000 onwards.

Statistical presentation

Purchasing power parities (PPP) is an annual price level indicator which expresses the price level in a given country at a given time, relative to the price level in one or more countries. This means that PPP for a particular country indicate how many units of national currency are needed in that country to maintain the purchasing power of €1 in the EU. PPP can be calculated for individual products or aggregates, such as GDP.

Statistical processing

Price surveys are conducted in order to provide price input data for household consumption, individual government consumption, collective consumption and gross fixed capital formation (investment goods and services). Reference (imputed) PPPs are used for NPISH consumption, inventories, and net exports.

Relevance

The EU Commission uses GDP per capita PPP converted, as basis for allocating funds from the Structural Fund to reduce the financial inequalities among and within the 27 EU Member States. Furthermore, indicators derived from PPPs are used for a wide range of analytic purposes, often providing background information for policymaking in the European institutions, in international organizations like the International Monetary Fund and the World Bank, and in national governments.

Accuracy and reliability

In the price surveys, the most important source of statistical margins of sampling errors is the range of goods and services, which are not equally representative of all countries included in the international comparisons. The composition of consumption expenditure differs among countries, and this gives rise to potential conflicts between representativeness and data comparability. For some areas, e.g. health it is particularly difficult to provide comparable information. The structure of the health sector differs among countries, and there are no "pure" market prices for these services, which constitutes another statistical margin of sampling error. The margins of sampling errors are not estimated.

Timeliness and punctuality

The statistics are usually published without any delay in relation to the scheduled date of publication.

Comparability

Purchasing power parities are compiled for the purpose of conducting price and volume comparisons for a specific year among countries. Consequently, they are comparable across the participating countries. Comparisons over time must be interpreted with caution, as the basket of goods and services differs from one year to another.

In the calculation of PPP, price level index and volume index, the average of EU28 was used as a reference country (group of countries) until 2020. With the United Kingdom's withdrawal from the European Union (EU), the EU27 (excluding the UK) = 100 will be used as a reference country (group of countries) from 2020. This has only a minor impact on the comparability of PPPs, the price level index and the volume index between 2019 and 2020.

Accessibility and clarity

These statistics are published annually in a Danish press release, at the same time as the tables are updated in the statbank. In the statbank, these statistics can be found under International volume and price comparision. Internationally, these statistics are available through OECD, Eurostat and Norden. For further information, go to the subject page.