What is PPP?

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PPP stands for “Purchasing Power Parity.”

It’s a way to compare money between countries so it’s fair — because things cost different amounts in different places.

Why do we need it?

Imagine someone in the U.S. has $50,000, and someone in Costa Rica has $10,000. Without PPP, it looks like the U.S. person is 5x richer. But everyday things — like food, rent, clothes — cost a lot more in the U.S. Because of that, $10,000 in Costa Rica might buy almost as much as $30,000 in the U.S. when adjusted.

PPP adjusts amounts so we compare “what you can actually buy,” not just the raw dollar numbers.

How it works (simple version):

• Pick a “basket” of goods and services (groceries, rent, shoes, etc.).
• See how much that basket costs in each country in their local money.
• Use that to adjust so that $1 in Country A = “same buying power” as $X in Country B.

So when you see “USD PPP dollars,” it’s as if everyone’s money is converted into a currency that reflects what you can really buy.

Example:

• In the U.S., that basket costs $100.
• In Costa Rica, the same basket costs, say, 50,000 Costa Rican colones ≈ $50 at market rates.
• PPP says those 50,000 colones are “worth” $100 in adjusted terms — because the goods cost the same.

📊 Chart: Nominal vs PPP Comparison for Some Countries

I used GDP per capita (PPP) as a rough stand-in, because that’s more readily available. It doesn’t perfectly equal “mean income,” but it shows the idea.

* Nominal = using market exchange rates

† PPP = adjusted for cost of living

You can see: Costa Rica’s nominal looks very low, but under PPP it becomes more respectable, because things there cost less.

🔗 Sources / references

• What is PPP? — Wikipedia
• OECD on using PPP to compare incomes/rent, etc. 
• OECD “Household income” uses PPP to compare disposable incomes across countries. 
• World Bank GDP per capita nominal data 

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