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

2/17/2013 12:11:27 AM

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.

SOURCE

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.

SOURCE

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

2/17/2013 12:41:57 AM

There are different ways to compare price levels between countries. The Consumer Price Index as e.g. repoerted by numbeo.com (which, in this form, is actually more a purchasing power parity index; see @MarcelC.’s answer) can be pretty good:

Consumer Price Excl. Rent Index (CPI) is relative indicator of
consumer goods price, including groceries, restaurants, transportation
and utilities. CPI Index doesn’t include accomodation expenses such as
rent or mortgage. If city has CPI index of 120, it means Numbeo
estimates it is 20% more expensive than New York (excluding rent).

The only thing that a typical traveller won’t need are utilities (have a look at the list of goods they included, you’ll be interested in the items that have >0 in the first column), though if utility cost is high, hotel costs are likely to be high as well. There’s also a specific restaurant index on the site linked above.

There’s one caveat, though: If there is very little domestic tourism in a country, the costs of “touristy” goods and activities will most likely be de-coupled from the cost of everyday living, i.e. you’r going to pay more than you’d expect).

The inverse (i.e. you pay less than you’d expect) can happen after bad publicity – shortly after a terrorist attack or a natural disaster, prices are usually very low, since there will be many tourists who cancel their plans.

In addition to such a generalized index, you may also want to sample specific comparable goods, for example the cost for a night at an international chain hotel, or the cost of a Big Mac, if you’re into that kind of thing.

Credit:stackoverflow.com‘

About me

Hello,My name is Aparna Patel,I’m a Travel Blogger and Photographer who travel the world full-time with my hubby.I like to share my travel experience.

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