PPP conversion factor for private consumption

Purchasing power parity (PPP) conversion factor is a spatial price deflator and currency converter that controls for price level differences between countries, thereby allowing volume comparisons of gross domestic product (GDP) and its expenditure components. This conversion factor is for household final consumption expenditure.

Limitations and exceptions: Global PPP estimates provided by ICP are produced by the ICP Global Office and regional implementing agencies, based on data supplied by participating countries, and in accordance with the methodology recommended by the ICP Technical Advisory Group and approved by the ICP Governing Board. As such, these results are not produced by participating countries as part of their national official statistics.

PPPs are not recommended use: As a precise measure to establish strict rankings of countries | As a means of constructing national growth rates | As a measure to generate output and productivity comparisons by industry | As an indicator of the undervaluation or overvaluation of currencies | As an equilibrium exchange rate.

Statistical concept and methodology: PPPs are both currency conversion factors and spatial price indexes. PPPs convert different currencies to a common currency and, in the process of conversion, equalize their purchasing power by controlling differences in price levels between countries.

Typically, higher income countries have higher price levels, while lower income countries have lower price levels (Balassa-Samuelson effect). Market exchange rate-based cross-country comparisons of GDP at its expenditure components reflect both differences in economic outputs (volumes) and prices. Given the differences in price levels, the size of higher income countries is inflated, while the size of lower income countries is depressed in the comparison. PPP-based cross-country comparisons of GDP at its expenditure components only reflect differences in economic outputs (volume), as PPPs control for price level differences between the countries. Hence, the comparison reflects the real size of the countries.

The International Comparison Program (ICP) estimates PPPs for the world’s countries. The ICP is conducted as a global partnership of countries, multilateral agencies, and academia. The most recent 2017 ICP comparison covered 176 countries, including 47 Eurostat-OECD countries. For countries that have not participated in ICP comparisons, the PPP are imputed based on a regression model.

ICP estimated PPPs cover years from 2011 to 2017. WDI extrapolates 2011 PPPs for years earlier years, and 2017 PPPs for later years. Description of WDI extrapolation approach is available here: https://datahelpdesk.worldbank.org/knowledgebase/articles/665452-how-do-you-extrapolate-the-ppp-conversion-factors

For the member countries of Eurostat-OECD PPP Programme, PPP conversion factors are periodically updated based on the organizations’ databases. For Eurostat-OECD PPP Programme, please refer to the following websites. (http://www.oecd.org/sdd/prices-ppp/) (https://ec.europa.eu/eurostat/web/purchasing-power-parities/overview)

For more information on the ICP and PPPs, please refer to the ICP website at https://www.worldbank.org/en/programs/icp.