Correction coefficients (countries) are used to ensure equality of purchasing power of remuneration between different locations within the European Union and Belgium. Correction coefficients are calculated as the ratio between the "economic parity" and the exchange rate to the Euro (where applicable). They operate as a percentage adjustment to remuneration expressed in local currency.
As the correction coefficient is simply the economic parity divided by the exchange rate, it can be seen that the exchange rate effect cancels out and the economic parity is the appropriate conversion rate to convert amounts expressed in local currency into Euro and eliminate the effect of price level differences.
The economic parity tells us how many currency units a given quantity of goods and services costs in different countries.
The method used to establish economic parities is to compare the price of a basket of goods and services purchased by the average retired international official in Belgium with the price of an equivalent basket of goods and services purchased by the average retired international official in each of the other countries.
To compile these prices, Eurostat carry out a number of detailed price surveys in cooperation with national statistical institutes. The same source data is used as for the similar exercise to establish correction coefficients for active staff in Intra-EU duty stations, however it is processed separately.
For each item, the price ratio with Belgium is computed. Similar items are grouped into "basic headings", and a geometric mean of the price ratios is calculated to establish a basic heading parity. These basic heading parities are then aggregated to produce an overall parity. This aggregate is computed as a weighted arithmetic mean, using consumption expenditure pattern of international officials as weights.