Comparability

Comparability - geographical

Purchasing power parities are primarily spatial price level indicators and 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.

In the calculation of PPP, price level index and volume index, the average of EU28 has been 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.

Comparability over time

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

In essence, PPPs are spatial price level indicators, and thus primarily suitable in comparisons referring to several geographical locations at a given point in time.

Unlike the item sampling and price collection that underlie consumer price indices, the sampling of items and the price collection for PPPs are not designed to capture price changes over time, but rather price differences across countries or other geographical units. If necessary, product samples will be changed between two consecutive surveys in order to maintain or improve comparability across countries. Survey methodologies may also change from one survey to the next, if this is deemed necessary to produce a spatial comparison of improved quality.

Nevertheless, PPPs and PPP-based indicators may be used in inter-temporal comparisons under certain circumstances, provided that the results are interpreted with sufficient care. For example, while it certainly makes sense to follow the temporal development of volume indices for high-level aggregates like GDP or actual individual consumption, lower-level aggregates will typically show more volatility over time, induced partly by changes in product samples or methodology.

Interpretation of time series

The interpretation of a time series that includes PPPs should be guided by the purpose of the analysis. The "perfect", multi-purpose indicator that simultaneously captures both spatial and temporal aspects adequately simply does not exist.

For example, a time series of price level indices does not provide a reliable measure of the development of prices in a given country. For that purpose, the consumer price index should be applied instead. Similarly, if we want to compare the rate of price change in two or more countries, the Harmonized Index of Consumer Prices (HICP) is readily available, at least for most European countries. Accordingly, a time series of PLIs shows, for each consecutive year, the various countries' price levels in relation to each other, and provides a rough indication of how these relative price levels have developed.

PPPs are primarily used to convert expenditures in different countries into a common currency and a common price level in order to ensure comparability. A current price time series of, for instance, GDP per capita, deflated by the current PPP of each year, ensures comparability of relative volumes across countries for each single year. However, the growth rates will not reflect real growth, since the expenditures are expressed in common, current prices. Still, when presented in index form (with, for instance, EU28=100) and per capita terms, they can be used as an analytical tool in temporal comparisons, but with caution.

Coherence - cross domain

PPPs and the PPP-derived indicators are accessible from two different domains in Statbank and from the Eurostat dissemination database: The prices-PPP domain and the national accounts domain.

PPPs, PLIs, volume indicators for the analytical categories can be found in the PPP domain, while PPPs for GDP, as well as expenditures and volume indicators for GDP and the main national accounts aggregates can be accessed from the national accounts domain as well.

While the PPPs at the level of GDP are identical in the two domains, there are some important differences between the two sets of volume indicators. Whereas the expenditure data in the PPP domain is updated twice a year (in June and December), the national accounts domain is updated continuously as countries provide revised NA updates. For this reason, the national accounts domain provides the most up-to-date indicators of GDP and GDP per capita in PPS.

On the other hand, the volume indicators in the price domain are based on aggregate-specific PPPs, while the national accounts domain uses the PPP for GDP to deflate not only GDP, but all sub-aggregates as well. This means that the volume indicators in the price domain are more suitable for aggregate-specific analyses than the data in the NA domain.

For these reasons, the expenditure and volume indicators in the two domains may not be entirely coherent at any given point in time, although discrepancies will normally not be very substantial.

Coherence - internal

Not relevant for this statistics.