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PPPs for policy making: a visual guide to using data from the ICP - Chapter 1: The size of the economy and price levels

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Price levels

Price level indexes (PLIs) from the ICP provide a measure of the differences in price levels between economies by indicating, for a given expenditure component level, if the price level for a given economy is lower or higher than the world average. ICP PLIs are calculated as the ratio of an economy’s PPP, for GDP or the relevant expenditure component, to its market exchange rate, as defined by the local currency to the US dollar market exchange rate. At the level of GDP, the PLI measures the differences in the general price levels of economies. Figure 1.4 shows regional PLIs based on the world average set equal to 100 for GDP and major expenditure components. Typically, higher-income economies have higher price levels, while lower-income economies have lower price levels and figure 1.5 shows the GDP level PLI against GDP per capita for each economy.