# PPP Calculator — Purchasing Power Parity

URL: https://speedycalculator.com/calculators/finance/ppp/
Last updated: 2026-10-25

> The PPP calculator works out the purchasing power parity exchange rate from the price of the same basket (or a Big Mac) in two countries, compares it with the market exchange rate and shows whether a currency is over- or undervalued.

## Inputs

- Price in country A (base currency)
- Price in country B (local currency)
- Market exchange rate (B per 1 A)
- Amount in currency A to compare

## Results

- PPP exchange rate (B per 1 A)
- Currency B over (+) / under (−) valuation
- What the amount buys in country B, valued at home prices

## Formula

```
PPP rate = price in country B (local currency) ÷ price in country A (base currency)
Valuation = (PPP rate ÷ market rate − 1) × 100
Negative = currency B undervalued vs currency A
```

## Explanation

The Economist's Big Mac index is a famous, light-hearted PPP test. Prices of non-traded services (rent, haircuts) are lower in poorer countries, so their currencies usually look undervalued by PPP.

### How to use the PPP Calculator — Purchasing Power Parity

- **Price in country A (base currency)**
- **Price in country B (local currency)**
- **Market exchange rate (B per 1 A)**
- **Amount in currency A to compare**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the price of the same item or basket in both countries and the market exchange rate (units of currency B per 1 unit of currency A).

### Tips

- Use real (inflation-adjusted) figures to compare across years.
- Check whether data are seasonally adjusted.
- Use the same currency and base year throughout.
- Economic models simplify reality – treat results as illustrations, not forecasts.

### Common mistakes to avoid

- Mixing nominal and real values.
- Comparing percentage changes with percentage-point changes.
- Treating correlations as causes.

### Inputs explained

FieldWhat to enterPrice in country A (base currency)Amount in your currencyPrice in country B (local currency)A numberMarket exchange rate (B per 1 A)A numberAmount in currency A to compareAmount in your currency

### What each result means

- **PPP exchange rate (B per 1 A)** = [Price in country B (local currency)]÷[Price in country A (base currency)]
- **Currency B over (+) / under (−) valuation** = ([PPP exchange rate (B per 1 A)]÷[Market exchange rate (B per 1 A)] - 1)×100
- **What the amount buys in country B, valued at home prices** = [Amount in currency A to compare]×[Market exchange rate (B per 1 A)]÷[PPP exchange rate (B per 1 A)]

### Example values

How the main result changes when **Price in country A** changes and everything else stays at the example values above:

Price in country A (base currency)PPP exchange rate (B per 1 A)2.95004.35333.3335.82507.252008.7166.66711.6125

## Worked example

Inputs — Price in country A (base currency): $5.8; Price in country B (local currency): 1,450; Market exchange rate (B per 1 A): 280; Amount in currency A to compare: $100.

Results — **PPP exchange rate (B per 1 A) = 250**; Currency B over (+) / under (−) valuation = -10.71 %; What the amount buys in country B, valued at home prices = $112.00.

## FAQ

**What is purchasing power parity?**
The exchange rate at which the same basket costs the same in both countries.

**What is the Big Mac index?**
The Economist's PPP comparison using Big Mac prices.

**Why don't exchange rates match PPP?**
Trade barriers, non-traded goods, capital flows and taxes.

**What formula does the PPP Calculator — Purchasing Power Parity use?**
PPP rate = price in country B (local currency) ÷ price in country A (base currency).


## Sources

- [World Bank – International Comparison Program (PPP)](https://www.worldbank.org/en/programs/icp)