Purchasing power parities

Purchasing power parities (PPPs)* are a way of measuring price differences between countries. The European Union (EU) has agreed on rules for their calculation within the national statistical institutes and Eurostat, the EU’s statistical office. These rules aim to improve the quality and comparability of the data collected and calculated.

ACT

Regulation (EC) No 1445/2007 of the European Parliament and of the Council of 11 December 2007 establishing common rules for the provision of basic information on purchasing power parities and for their calculation and dissemination

SUMMARY

Purchasing power parities (PPPs)* are a way of measuring price differences between countries. The European Union (EU) has agreed on rules for their calculation within the national statistical institutes and Eurostat, the EU’s statistical office. These rules aim to improve the quality and comparability of the data collected and calculated.

WHAT DOES THE REGULATION DO?

It sets out the rules for the development, production and calculation of PPPs and the responsibilities of the various parties involved.

KEY POINTS

Roles and responsibilities

• Eurostat calculates PPPs each calendar year. Its tasks include:
  • coordinating the supply of basic information;
  • collecting information from EU countries for the calculation of PPPs;
  • calculating and publishing PPPs; and
  • developing and communicating methodology, in consultation with EU countries.
• EU countries must:
  • follow the procedure for basic data collection laid down in the regulation;
  • certify the survey results for which they are responsible once data validation has been completed;
  • approve the data collection methodology and check the plausibility of data provided by Eurostat.

Quality control

• Each country has to keep records of how they have implemented this regulation. Their PPP process must be assessed at least once every 6 years.

Published results

• The results are published by Eurostat no later than 3 years after the end of the reference year. They include at least the following:
  • PPPs at the level of gross domestic product (GDP);
  • PPPs for private household consumption expenditure* and actual individual consumption*;
  • price level indices* relative to the EU average;
  • GDP, private household consumption expenditure and actual individual consumption and respective per capita figures in purchasing power standard*.

Use of PPPs

PPPs are used to calculate:

• the sums allocated by the EU’s Structural and Investment Funds; national per capita GDPs deflated by PPPs are used to draw up the list of regions eligible for Structural Funds assistance and to determine the amount of funding allocated to each region;
• the correction coefficients to be applied to the pay and pensions of EU officials and other EU employees in accordance with the Staff Regulations of Officials and the Conditions of Employment of Other Servants of the European Economic Community and the European Atomic Energy Community.

Grant available

• As PPPs are fundamentally international statistics and have only a limited national purpose, Eurostat provides a financial contribution that covers up to 70 % of the costs incurred by those EU countries which are eligible under the rules on grants (Regulation (EC, Euratom) No 1605/2002 - the EU’s Financial Regulation).

WHEN DOES THIS REGULATION APPLY?

From 9 January 2008.

For more information, see:

• purchasing power parities: overview on Eurostat’s website;
• purchasing power parities: statistics illustrated on Eurostat’s website.

KEY TERMS

* Purchasing power parities (PPP): indicators of price level differences across countries. They provide a direct comparison of how many units of currency are needed to purchase a given quantity of goods or services in different countries.

* Household final consumption expenditure: expenditure incurred by resident households on consumption of goods or services.

* Actual individual consumption: the total value of the individual consumption expenditures of households, NPISHs (Non-profit institutions serving households) and general government. A measure of the individual goods and services that households actually consume as opposed to what they actually purchase.

* Price level indices: the ratios of PPPs to exchange rates. They provide a measure of the differences in price levels between countries by indicating the number of units of the common currency needed to buy the same volume of the aggregation level or analytical category in each country.

* Purchasing power standard: an artificial common currency in which national accounts aggregates (e.g. aggregated consumption, aggregated investment) are expressed when adjusted for price level differences using PPPs. This allows comparability of results.

last update 13.08.2015