How to get an impression of the average price level of a destination?

How to get an impression of the average price level of a destination? - Anonymous person pressing button of lift

We are constantly looking for affordable offers to travel. Sometimes it turns out to be cheaper to just pay a little bit more for the airfare and save money on for example food or accommodation. A 3 weeks backpack trip to China, for example, turned out to be way cheaper then a three week trip through Spain, although the airfare to China was more then twice the trip to Spain.

How can I find out out that it might be worth just paying a bit more on airfares and save on the rest?



Best Answer

This is an interesting and relevant question. Unfortunately, there is no simple answer at all! There are two possibilities, the Purchasing Power Parities (PPP) and the so-called Big-Mac Index. None of them is perfect. There are caveats (see below). However, if you combine the information from these two and you add some destination specific data, you will come close to your gaol. By the way, this leads to another remark. The definitive answer to this question is destination specific.

First of all, one can use Purchasing Power Parities (PPP). According to Eurostat, the PPP is defined as follows:

Purchasing power parities, abbreviated as PPPs, are indicators of price level differences across countries. PPPs tell us how many currency units a given quantity of goods and services costs in different countries.

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From a practical point of view, this means that if two countries have the same PPP, price levels in both countries are the same (on average). A higher (lower) PPP means higher (lower) prices. Eurostat and the OECD publish data on PPP's. The World Bank aims to provide this kind of data for a larger number of countries.

PPP's have some caveats that you should be aware of:

  • They are based on some typical or average consumption patterns or baskets. The consumption pattern of a tourist is different.
  • These indicators are available for enitre countries. However, within countries, there may be huge differences of price levels.
  • Pay attention to the source of the data. Eurostat data is usually well harmonised. OECD also, but to a lesser extent. With the World Bank you have to be more cautious, although they are doing a great job. The larger the coverage, the more careful you should be ...

The Big Mac Index is an interesting indicator too. It is easy to understand. However, the caveat is that it only reflect the price of one single good. On the other hand, it can give you a good indication of average price levels in a country. Oh, and yet another caveat, and it has been invented by The Economist ... ;-)

Consumer Price Indices (CPI) are used to measure measure the evolutions of prices over time, a.k.a inflation:

The consumer price index, abbreviated as CPI, measures the change over time in the prices of consumer goods and services acquired, used or paid for by households.

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Even if they are harmonised and comparable, they do not tell you anything about differences in levels between countries.




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