Glossary · Economy
Purchasing-power parity (PPP)
Purchasing-power parity (PPP) is an exchange rate that equalizes what money buys in different countries, used to compare incomes and economies fairly.
Also called: PPP, purchasing power parity, PPP exchange rate
Changed into rupees at the market rate, it buys as much as this would in the US (2025).
At market exchange rates, 2025. At PPP: 134% (IMF).
In plain words
Suppose a haircut costs $30 in New York but the same haircut costs the equivalent of $5 in Delhi. Then $100 changed into Indian rupees buys far more in India than in the US. Comparing countries at market exchange rates misses that. Purchasing-power parity fixes it: it converts money at the rate that would make the same basket of goods and services cost the same everywhere.
Economists build a giant price list (food, rent, haircuts, cars, doctors) and price it in every country. The result is a PPP exchange rate for each currency, and a unit called the international dollar, which buys in each country what one US dollar buys in the US.
The difference can be huge. In 2025, $100 changed into rupees bought about as much in India as $435 would in the US. In Switzerland, $100 changed into francs bought only what $89 buys in the US.
Example
A burger exchange rate
- A burger costs $6 in the US and 300 pesos in Pesoland.
- The market exchange rate is 100 pesos per dollar, so your $6 becomes 600 pesos: enough for two burgers.
- The PPP rate makes the burger cost the same in both places: 300 pesos ÷ $6 = 50 pesos per dollar.
- Pesoland’s GDP is 50 trillion pesos: $500 billion at the market rate, but $1 trillion at PPP.
The Economist magazine has run this half-joking “Big Mac index” since 1986; real PPP rates use thousands of prices, not one burger.
One level deeper
PPP rates come from the International Comparison Program, run by the World Bank, which collects prices in more than 170 economies every few years; the World Bank and the IMF estimate the years in between.
Why are prices lower in poorer countries? Mostly because local services, like haircuts, rent and restaurant meals, are made by workers paid local wages, while traded goods like phones cost about the same everywhere. Economists call it the Balassa–Samuelson effect.
PPP reshuffles world rankings. In 2025, China’s GDP was 64% of the US’s at market exchange rates but 134% at PPP (IMF figures). Market rates are the right ones for things bought on world markets, such as oil or debt payments; PPP is better for comparing living standards.
What $100 buys around the world
Change $100 into the local currency at the market rate and spend it there: this is what it buys, priced at US prices. Above $100, money goes further than in the US; below it, the country is dearer.
The numbers behind the chart
| 2025 | |
|---|---|
| Nigeria | $779 |
| Egypt | $655 |
| India | $435 |
| Russia | $282 |
| Turkey | $243 |
| Brazil | $219 |
| China | $212 |
| Mexico | $186 |
| South Korea | $174 |
| Japan | $154 |
| Germany | $125 |
| United Kingdom | $112 |
| Norway | $110 |
| United States | $100 |
| Switzerland | $89 |
Why it matters
It is the fair way to compare living standards: a salary of $500 a month means very different things in Cairo and in Zurich.
It can change who looks biggest: the IMF put China’s economy at 64% of the US’s at market exchange rates and 134% at PPP in 2025.
Over long periods, exchange rates tend to drift toward PPP, so economists use it as a rough guide to which currencies look dear or cheap. The pull is weak and takes years.
A common mistake
Myth: PPP shows that market exchange rates are wrong.
In fact: Market rates are set by trade and money flows, and they are the right ones for buying across borders: oil, phones, foreign debt. PPP answers a different question: how much an income buys at home.
Questions people ask
What is an international dollar?
A made-up unit with the same purchasing power in every country as one US dollar has in the US. GDP at PPP is measured in international dollars.
Which economy is the largest at PPP?
In 2025 the largest economy at PPP was China, while at market exchange rates it was United States (IMF and World Bank).
What is the Big Mac index?
A light-hearted PPP gauge published by The Economist since 1986: it compares the price of a Big Mac in each country with its US price to see which currencies look cheap or dear.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- GDP, current prices: International Monetary Fund, World Economic Outlook database (October 2026), https://www.imf.org/external/datamapper/NGDPD@WEO; via the IMF DataMapper API, indicator NGDPD (GDP, current prices, Billions of U.S. dollars).
- GDP at purchasing power parity: International Monetary Fund, World Economic Outlook database (October 2026), https://www.imf.org/external/datamapper/PPPGDP@WEO; via the IMF DataMapper API, indicator PPPGDP (GDP, current prices, Purchasing power parity; billions of international dollars).
- GDP, current US dollars: The World Bank: World Development Indicators: GDP (current US$) (NY.GDP.MKTP.CD). Original source: Country official statistics, National Statistical Organizations and/or Central Banks; National Accounts data files, Organisation for Economic Co-operation and Development (OECD); Staff estimates, World Bank (WB).
- GDP per capita, current US dollars: The World Bank: World Development Indicators: GDP per capita (current US$) (NY.GDP.PCAP.CD). Original source: Country official statistics, National Statistical Organizations and/or Central Banks; National Accounts data files, Organisation for Economic Co-operation and Development (OECD); Staff estimates, World Bank (WB).
- GDP per capita at purchasing power parity: The World Bank: World Development Indicators: GDP per capita, PPP (current international $) (NY.GDP.PCAP.PP.CD). Original source: International Comparison Program (ICP), World Bank (WB); The Eurostat PPP Programme, Eurostat (ESTAT); The OECD PPP Programme, Organisation for Economic Co-operation and Development (OECD); Staff estimates, World Bank (WB); National Accounts data files, Organisation for Economic Co-operation and Development (OECD); World Economic Outlook database, International Monetary Fund (IMF).
- PPP conversion factors are benchmarked in the International Comparison Program every few years and estimated in between, so they are revised from time to time.
- This page explains a term. It is not investment advice.