Purchasing power parities represent the purchasing power of the national currency of the different countries. In their simplest form, purchasing power parities are price ratios for an identical product in two or more countries in the respective local currencies.
If a kilo of apples (Granny Smith, 1A quality) cost €2 in France and CHF 5 in Switzerland, purchasing power parity in Switzerland has a ratio to France of CHF 2.50 to €1. These simple price relationships are then aggregated over larger product groups to the gross domestic product.
The national statistical offices annually survey the prices of around 12 000 products from various areas such as food, clothing, transport services, hospital services and construction. Subsequently, analytical categories (such as “food and non-alcoholic beverages”, “clothing and footwear”, “health” or “transport”) are formed. These are included in the superordinate aggregates “actual individual consumption”, “actual collective consumption” and “gross fixed capital formation” which ultimately make up the GDP.
