Purchasing power parities (PPPs) are indicators of price level differences across countries. PPPs tell us how many currency units a given quantity of goods and services costs in different countries. PPPs can thus be used as currency conversion rates to convert expenditures expressed in national currencies into an artificial common currency (the Purchasing Power Standard, PPS), eliminating the effect of price level differences across countries.
The main use of PPPs is to convert national accounts aggregates, like the Gross Domestic Product (GDP) of different countries, into comparable volume aggregates. Applying nominal exchange rates in this process would overestimate the GDP of countries with high price levels relative to countries with low price levels. The use of PPPs ensures that the GDP of all countries is valued at a uniform price level and thus reflects only differences in the actual volume of the economy.
PPPs are also applied in analyses of relative price levels across countries. For this purpose, the PPPs are divided by the current nominal exchange rate to obtain a price level index (PLI) which expresses the price level of a given country relative to another, or relative to a group of countries like the EU28.
The production of PPPs is a multilateral exercise involving the National Statistical Institutes of the participating countries, Eurostat and the OECD.
Indicators in Eurostat's dissemination database
The indicators published in the price domain on Eurostat's website are the following:
Purchasing power parities (PPPs) scaled to the sum of expenditures of the EU Member States expressed in euro. This means that the PPP of one particular country indicates how many units of national currency one would need in that country in order to maintain the purchasing power of one euro in the EU
Price level indices (PLIs) as defined above
Nominal expenditure in national currency, as extracted from each country's national accounts
Nominal expenditure as percentage of GDP
Nominal expenditure in euro
Nominal expenditure per inhabitant in euro
Real expenditure, defined as nominal expenditure divided by the PPP
Real expenditure per inhabitant
Volume indices of real expenditure per inhabitant
The convergence indicators, defined as the coefficient of variation of the price level indices (PLIs) and per capita volume indices (VIs) of gross domestic product (GDP), actual individual consumption (AIC) and household final consumption expenditure (HFCE). It measures the price and volume convergence across countries.
In addition, PPPs and real expenditures are available from the national accounts domain of the database. For further details, cf. 17.1.