Purchasing power parity

Internationalab 13 J.

A Big Mac costs €7 in Switzerland and €2 in India. Purchasing power parity adjusts for price levels: what a euro is REALLY worth in different countries.

Purchasing power parity (PPP) compares how many goods and services you get for the same amount of money in different countries.

Why does it matter?

An engineer in India might earn €15,000/year – in Germany €60,000. But: in India, food costs only 1/4, rent 1/5 and a haircut €1 instead of €25. Adjusted for purchasing power, the Indian engineer earns considerably more than it seems.

The Big Mac Index:

Since 1986, The Economist has compared the price of a Big Mac worldwide as a simple measure of purchasing power:

• Switzerland: approx. €7.50 (the most expensive Big Mac in the world)
• Germany: approx. €5.30
• USA: approx. €5.70
• India: approx. €2.50
• Egypt: approx. €2.00

For travellers: in countries with low purchasing power (South-East Asia, Eastern Europe, South America), you get considerably more for your euros. €30/day is enough for a hotel + food + transport in Thailand. In Zurich it won't even cover the hotel.

Did you know? The Economist's Big Mac Index shows that the Swiss franc is the world's “most expensive” currency (measured by purchasing power), while the Turkish lira and the Egyptian pound are the “cheapest”.

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