Germanwatch

The Indicator “Losses in Purchasing Power Parity” Allows for a More Comprehensive Estimation of How Different Societies are Actually Affected

The indicator “absolute losses in US$” is identified by purchasing power parity (PPP) because using this figure expresses more appropriately how people are actually affected by the loss of US$ 1 than by using nominal exchange rates. Purchasing power parity is a currency exchange rate, which permits a comparison of, for instance, national GDPs, by incorporating price differences between countries. This means that a farmer in India can buy more crops with US$ 1 than a farmer in the USA with the same amount of money. Thus, the real consequences of the same nominal damage are much higher in India. For most countries, US$ values according to exchange rates must therefore be multiplied by a factor bigger than one.

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