Reply
Mon 31 Aug, 2015 07:04 pm
Hi,
I'm new to the forum and wondering if anyone can help me understand this question about the relationship between Purchasing Price Parity (PPP) and Price Level Index (PLI). I'm sure there's a logical explanation, I just don't know what it is!
I'm comparing wages in Sweden and the UK. According to the OECD, in 2011 the average wage in UK was £31,257. In Sweden it was 355,062 Swedish Krona. in 2011 1 Swedish Krona was worth £0.096 so this converts to £34,136. So the wages are 9.2% higher in Sweden. In PPP terms they are more similar. The UK average wage converts to a PPP of $39,291 whilst Sweden's is 41,797 in 2014 USD. So Sweden is 6.4% better off using PPP.
The confusing part is that the World Bank 'actual individual consumption' Price Level Index for Sweden was 177.2 in 2011, whilst the UK was 146.7.
How can Swedish prices be 21% more than the UK if their income is only 6.4% - 9.2% greater? What is the relationship between Price Level Index,Purchasing Price Parity and Wages?
@Zhang Ran Ran,
From the OECD-- Comparative price level indices are the ratios of purchasing power parities to market exchange rates. At the level of GDP, comparative price levels provide a measure of the differences in the general price levels of countries. This indicator is measured as an index.
Stumble It!
Tweet This
Bookmark on Delicious
Share on Facebook
Share on MySpace