Purchasing power parity

A method of allowing for differences in purchasing power between countries, which involves adjusting for price differences.

PPP (purchasing power parity) compares the relative purchasing power for a given sum of money in different countries. PPP enables realistic comparison between two different countries, showing how much of one country’s currency you need to spend in order to obtain the equivalent in goods and services in the second country's currency. For example: PPP Country X <-> Netherlands = 103: For every euro spent in the Netherlands, you need to spend the equivalent of 103 euros in the other country's currency to obtain the equivalent in goods and services.

PPP can also be used to calculate prices in countries that use the same currency. In this case, PPP simply reflects price differences. For example: PPP for France <-> NL = 1.05 -> France is on average 5 percent more expensive than the Netherlands.