New purchasing power parities reveal large relative cost of living difference across the OECD in 2022

Comparing macroeconomic indicators across countries is a tricky issue, as it requires adjustment for differences in currencies and price levels to ensure a like-for-like comparison. Purchasing Power Parities (PPPs) are the right tool for this, calculated based on prices of a common and comprehensive basket of goods and services. As a result, PPPs are the go-to conversion rates to be used when comparing macroeconomic indicators, such as GDP or price levels, across countries.

The latest “flash” PPPs point to large variability across countries for Gross Domestic Product (GDP) per capita in PPPs in 2023. These data show that GDP per capita varied from 242% to 38% of the OECD average (Figure 1). Luxembourg, Norway and Ireland exhibited the largest GDP per capita, exceeding twice the OECD average, reflecting a large share of foreign residents in Luxembourg, the large oil and gas industry in Norway and the presence of multinationals in Ireland. Colombia and Mexico are the OECD member countries with the lowest GDP per capita, each at around 40% of the OECD average. The gap between the three top performing countries to the OECD average narrowed compared to 2022, while the relative performance of a few countries, notably Iceland and Türkiye, increased between 2023 and 2022.

Actual individual consumption (AIC), a measure of material welfare, covers both goods and services purchased by households, as well as those provided by the government and non-profit institutions (such as health services or education). Detailed PPP data, broken down by expenditure categories, reveal that similarly to GDP, AIC per capita relative to the OECD average varied widely across countries (Figure 2). Among the OECD member countries, the United States has the highest AIC per capita (at about 50% above the OECD average), while the AIC per capita is lowest in Colombia (at 44% of the OECD average).

While the variation of AIC within countries over 2020-22 was relatively small, usually a few percentage points between years, several expenditure categories exhibited large swings, notably Restaurants and hotels (Figure 3), Communications, or Personal transport equipment. Per capita expenditure relative to the OECD average was at its lowest levels over the period in most countries in 2020 and grew thereafter. Personal transport equipment had a similar pattern over time and so did Communications. However, some countries exhibited a U-shaped pattern for Communication expenditure, with a decline in 2021, for instance France or Poland.

PPPs also make it possible to compare price levels across countries, providing some insights on relative cost of living in the period 2020-22 (Figure 4). Looking at the consumer goods and services that households purchase themselves, Switzerland had the highest price level among the OECD member countries (at about 50% above the OECD average), followed by Israel and Iceland (almost 40% above OECD average). Colombia and Türkiye had the lowest price levels, at around 40% of the OECD average.

Among the expenditure categories, relatively large price level index swings within countries over 2020-22 are visible in Housing, water, electricity, gas and other fuels, which account for about 10-15% of GDP in most countries (Figure 5). Fluctuations coming from the prices of gas are visible everywhere. In the United States sizeable increases in rents also contributed to the rise in the price level index in the category. The price level differences across countries in the Housing, water, electricity, gas and other fuels category more generally are large, ranging from about 170% of the OECD average in 2022 in Switzerland, to around 16% of the OECD average in Türkiye.

The latest detailed Purchasing Power Parities (PPP) were published on 5th April 2023. This is the first time the OECD publishes PPP results by 50 analytical expenditure categories for 2020-22. The flash estimate for GDP per capita is published for 2023.

The next release is planned for June 2024, when an estimate of 2023 PPP will be published for GDP, AIC and Household Final Consumption. The next release of detailed PPP results for 2021-23 is planned at the beginning of 2025.