00:00 So Nadia,
00:01 you're an economist who studies prices all over the world.
00:04 Before we jump into your work in the International comparison Program.
00:07 Let's take a step back for a minute.
00:09 Why is it important to study prices?
00:11 Prices are quite important actually.
00:13 They are on everybody's mind.
00:15 They are on our mind when we wake up in the morning.
00:17 So for us consumers,
00:18 it's very important to understand how far
00:22 our wages would go,
00:24 how much we can buy with our wages.
00:26 So suppose you have a washing machine that's just broken down.
00:29 You wake up thinking,
00:30 can I afford the new washing machine?
00:33 Let's think about lower income economies.
00:36 There they have bigger concerns.
00:38 Can they afford the food that their children need?
00:42 Can they afford the shelter and the healthcare that they need?
00:45 So for all consumers,
00:46 whether in high income income.
00:49 Whether in high income countries or in low income countries,
00:52 it's a very important thing to look at prices
00:55 for producers as well,
00:57 it's important to look at the prices of the goods and services that they are going
01:01 to sell eventually,
01:03 and for them,
01:03 something that is quite important
01:05 is the cost of the materials and the wages that go into the
01:09 production of the goods and services that they produce and ultimately sell.
01:13 For us economists,
01:15 for us here at the World Bank,
01:16 we use prices to calculate very important development indicators
01:21 from inflation,
01:22 from the growth in the economy
01:24 to the cost of living.
01:26 And finally,
01:28 prices are very important when you are trying to compare the relative cost of living
01:33 across countries or across regions within a.
01:36 So you are Americans,
01:37 and many Americans when they want to retire,
01:40 they think about Florida as a destination for them to retire.
01:44 And the reason is it's not just the beaches
01:46 and the very nice climate that you have there,
01:49 it's not the taxes as well,
01:50 but it's also
01:52 that Florida has a lower cost of living
01:54 compared to,
01:55 for example,
01:56 here in Washington DC or in New York.
01:59 So one of the terms that comes up pretty often is purchasing power parity or PPP.
02:04 What is PPP other than a brilliant case of alliteration gone awry?
02:09 Well,
02:09 it's,
02:10 it's a funny acronym and it's very popular actually.
02:14 So we here at the World Bank,
02:15 we use it as well to talk about public-private partnerships.
02:19 So it is actually can get really quite confusing.
02:22 However,
02:23 if we think about PPPs in the sense of purchasing power parity,
02:26 it's an ancient concept that started in the University of Salamanca in Spain
02:31 in the 1500s,
02:33 and then the modern definition was developed by
02:36 a Swedish economist Cassell in 1918 after World War
02:41 I.
02:42 And if you want to think of it,
02:45 basically,
02:45 it is a measure,
02:47 it's an index
02:48 that helps you compare
02:50 the relative cost of goods and services across
02:52 countries or across states within a country,
02:55 in contrast to,
02:56 for example,
02:57 another important price index called the Consumer Price Index,
03:00 which you hear every day on the news,
03:02 I guess,
03:02 because
03:03 what the Consumer price index does is it measures the
03:07 increase or decrease in the cost of goods and services over time.
03:11 And this is how we measure inflation,
03:13 for example.
03:14 So PPP is rather to measure
03:17 or compare the relative cost of goods and services
03:20 across countries at a certain point in time.
03:22 While the consumer price index is to measure the
03:26 progression in the cost of goods and services over time
03:28 in certain
03:29 countries,
03:31 so I don't know if you're familiar with the
03:33 Big Mac index from the Economist Intelligence Unit.
03:36 No,
03:36 but I like Big Macs.
03:37 OK,
03:37 that's great.
03:38 I'm not a big fan
03:40 of Big Macs,
03:41 but
03:41 The Big Mac index is actually a miniature PPP because
03:46 what they do is that they take one product,
03:48 which is the Big Mac.
03:50 The economists,
03:51 what they do with it is that they compare the price of Big Mac across all countries
03:55 and they come up with an index that compares the cost of Big Mac across countries.
04:00 The PPPs,
04:01 if you want,
04:02 are a Big Mac on steroids.
04:04 Because
04:04 basically we look at
04:07 basically a big basket of goods and services,
04:11 and this basket of goods and services does not include only
04:15 products that you can buy in a grocery store,
04:17 but also a lot of services,
04:19 so health,
04:20 education,
04:20 construction,
04:21 so it is more complete and more comprehensive.
04:24 So it is basically on steroids indeed.
04:26 So if
04:28 Danny,
04:29 Danny,
04:29 if we were.
04:31 I'll start that over.
04:32 um,
04:33 so you said purchasing power parity looks at a basket of goods.
04:35 Uh,
04:36 if Danny and I control the basket,
04:37 right,
04:37 Danny,
04:38 we would probably have what bubble gum,
04:40 energy drinks,
04:41 uh,
04:41 candy,
04:42 certainly Big Macs,
04:43 um,
04:43 but who actually decides what's in the basket,
04:46 and is it,
04:46 is it one basket for the.
04:48 Entire world.
04:50 Well,
04:50 thankfully I'm not the one who decides the basket.
04:52 I run the program,
04:53 but I don't decide on the basket.
04:54 Otherwise it will have
04:56 shoes and shoes and a little bit more shoes.
04:59 So thankfully neither you nor Danny nor me are deciding what goes in the basket.
05:03 The way we decide what goes in the basket starts with inputs from countries.
05:07 So every country in the world will send us a list of goods
05:10 and services that are very important for
05:12 the consumption patterns of their populations.
05:15 So for example,
05:16 onions are very important in India.
05:19 Bread is very important in Egypt,
05:21 avocado in
05:23 Mexico,
05:24 and rice in Thailand and in China.
05:27 So they send us all these inputs and we take a look at all the inputs from countries
05:31 and we try to come up with a common list of items,
05:35 and that is important for the.
05:37 Assumption pattern in a certain region or across the world.
05:40 So definitely in Asia rice will make it to the regional list
05:44 and in MA,
05:46 the Middle East and North Africa,
05:47 the region I come from,
05:48 we definitely should have flatbread.
05:51 We cannot eat bread every meal.
05:54 I think I support that.
05:56 So what are the most common factors that affect prices in that basket of goods?
06:03 The factors that affect prices are usually the factors that affect both
06:07 the demand and the supply of a good or a service,
06:10 and these are factors that are quite important on the
06:12 agenda of development banks and the development community these days.
06:17 I'll give you a few examples.
06:19 The government fiscal policies,
06:21 because those determine the taxes and subsidies on goods and services.
06:25 Monetary policies that curb inflation in a country
06:30 as well as trade wars,
06:31 trade agreements,
06:33 because the tariffs are impacted by those
06:35 trade agreements and those tariffs are transferred to
06:38 the consumer through an increase or a decrease in the prices of goods and services.
06:42 So imagine if you were to increase,
06:44 for example,
06:45 the tariffs on Mexico
06:46 and there would be more tariffs on avocado.
06:49 The price of avocado in the United States
06:52 and eventually the price of guacamole that you buy in restaurants
06:56 would be impacted most likely.
06:57 You're getting me worried there.
06:58 I know.
06:58 I'm worried too.
06:59 I like avocado.
07:01 What else?
07:02 Climate.
07:03 Climate is very important because
07:06 weather conditions impact the prices of food items because a shortage
07:10 in the supply of one of these food commodities will translate into
07:15 an increase in prices.
07:17 Wars as well and conflict,
07:19 they impact the prices.
07:21 Of some goods and services,
07:23 and finally,
07:24 labor wages and labor markets are quite important
07:27 because labor is,
07:28 if you want an input to the production of these goods and services.
07:32 So if you were to increase the minimum wage,
07:34 for example,
07:35 most likely you could see that translated into an increase
07:38 in prices of some of the goods and services.
07:41 So you run the international comparison program,
07:44 uh,
07:44 there's a global partnership with development banks,
07:46 multilateral institutions,
07:48 uh,
07:48 around 200 countries,
07:50 uh,
07:50 that collects prices around the world and produces these PPPs.
07:54 So the ICP celebrated its 50th anniversary last year.
07:57 What are the most important lessons that we've learned from half
08:00 a century of collecting and analyzing this kind of data?
08:04 So the International Comparison Program started as a small research program
08:10 at the University of Pennsylvania,
08:12 and it was a collaboration between the university and the United Nations.
08:16 There were 3 leading economists who started this project
08:20 Kravitz,
08:21 Summers,
08:22 and Anne Hasan.
08:23 And it grew to become actually the largest
08:27 statistical program or data program in the world
08:30 because we have 200 countries collecting a massive amount of data
08:34 for a large basket of goods and services and sending them
08:38 through through our regional partners to us here at the World
08:41 Bank so that we could produce these purchasing power parities.
08:46 I think the program learned a lot over this journey,
08:49 a 50 year journey.
08:51 The strength of the program,
08:53 we learned that the strength of the program lies in its partnership,
08:56 a very strong partnership between multilateral institutions
09:00 and between the countries and the national statistical offices
09:03 in those countries that collect all this data.
09:07 We learned as well that the program has a lot of shortcomings or some shortcomings.
09:12 The major shortcoming is that
09:15 the
09:16 frequency
09:17 with which we were by which we were collecting the prices
09:20 and producing the PPPs was 6 years,
09:24 and a lot could happen in the economy in the world over 6 years.
09:28 So based on the users' feedback,
09:30 we decided to
09:32 decrease this frequency or to increase the frequency,
09:34 decrease the time lag between the production of these PPPs
09:38 from 6 years to 3 years.
09:40 So now the countries are collecting price data every
09:42 3 years and we are producings every 3 years
09:46 and eventually we would like to produce them on an annual basis.
09:50 But one thing that we are learning lately is that
09:53 with this.
09:55 Huge technological advancements in the world.
09:59 We need to change and to evolve our business.
10:02 We need to evolve
10:04 what we are collecting and how we are collecting it.
10:07 What we are collecting,
10:08 going back to what you were mentioning about the baskets of goods and services,
10:12 the basket of goods and services has to change,
10:14 has to evolve to include new items.
10:17 Let's think for example about the sharing economy.
10:21 So now
10:22 instead.
10:23 Ordering a taxi,
10:24 you are calling Uber
10:26 through your app on your phone,
10:28 Lyft as well,
10:29 Airbnb.
10:30 Those are all becoming important services that we have to account
10:34 for when we build our basket of goods and services.
10:37 Let's look at how we are collecting the data that also has
10:40 to evolve because more and more we are finding prices online.
10:43 So if you want to travel
10:45 to Europe,
10:46 what do you do?
10:47 You go online.
10:49 So all these prices.
10:50 Of all these tickets are online and this is
10:53 why web scraping is becoming a reality in price data
10:57 in price statistics.
10:59 You can use web scraping to collect a massive
11:01 amount of data from the web and use that data
11:04 to produce,
11:05 consumer price indexes,
11:07 or purchasing power parities.
11:09 At the same time,
11:09 there are also
11:11 many initiatives around the world with working with grocery stores.
11:15 think Walmart here in the
11:17 States or Carrefour in Europe,
11:19 so you can work with them so that they can give you
11:22 what we call scanner data.
11:24 It's all the scanner information as you go through
11:27 the scanner line.
11:28 All this information that is being collected can also be
11:31 supplied to national statistical offices or to us here,
11:35 and then they could go into our price statistics that we are producing.
11:38 So the business is evolving and we have to keep up with the new times.
11:44 So when we talk about development,
11:46 we,
11:46 as we said,
11:47 we often discuss metrics like GDP,
11:49 uh,
11:49 median incomes.
11:50 Is that
11:51 really enough to understand people's welfare and their standards of living?
11:55 I think you touched upon that in your introduction very eloquently,
11:58 actually.
11:59 It's very important in economics to look at income
12:02 per capita and to look at median income.
12:05 But it's also this is only part of the equation.
12:08 It's also important
12:09 to go back and look at the prices that are faced by the consumers,
12:14 because you need to understand what this median income
12:17 would buy in country X or country Y.
12:19 You need to understand
12:21 the people with this median income,
12:23 what can they afford so that you can understand better their welfare or their.
12:27 Of living
12:28 and this is why in the in the International comparison Program,
12:32 a very important indicator that we produce is actually per capita in terms
12:38 because
12:39 that indicator controls for the differences in price levels across countries
12:44 so that you can compare welfare more
12:46 directly across countries and standards of living.
12:50 So were you always interested in studying prices and when did you come
12:54 to the realization that prices have such an enormous effect on people's lives?
12:59 I believe when I joined the bank actually 15 years ago,
13:03 because only then did I started understanding how
13:06 purchasing power parities and prices in general
13:09 are quite important as an ingredient
13:11 to the World Bank's international poverty line
13:14 and global poverty measurement.
13:16 So poverty measurement requires various data ingredients.
13:21 These include,
13:22 for example,
13:22 an indicator of consumption and income.
13:25 An indicator of population,
13:28 so the data on population
13:30 and the data on growth,
13:32 but also
13:33 very importantly,
13:34 data on prices,
13:35 whether it is
13:36 consumer price indexes or purchasing power parities.
13:40 So I realized that prices are very important
13:43 in understanding
13:44 who the poor are.
13:45 And where they live,
13:47 and only then can you really advise countries
13:50 on how to
13:52 design
13:52 effective poverty reduction
13:55 policies and measures.
13:56 And so finally,
13:57 because we are running out of time,
13:59 what's the most powerful thing about economics?
14:02 The most powerful thing about economics for me is data
14:07 because data is
14:09 knowledge,
14:10 is facts,
14:10 it's evidence,
14:12 and I think only with knowledge
14:14 can you really drive progress in the world.
14:17 We'll have to leave it at that.
14:18 Nada Hamadi,
14:18 thanks so much for being with us.
14:19 Thank you very much.
14:20 Thank you for having me.
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