Relative Purchase Power Parity


DEFINITION of 'Relative Purchase Power Parity'

An expansion of the purchase power parity theory, which suggests that prices in countries vary for the same product but that they differ by the same proportional rate over time. The reasons suggested for this price difference include taxes, shipping costs and differences in product quality.

BREAKING DOWN 'Relative Purchase Power Parity'

The relative purchase power parity condition suggests that countries with higher rates of inflation will have a devalued currency.

  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  4. New York Dollar

    The buying power of a U.S. dollar in the city of New York. The ...
  5. Currency

    A generally accepted form of money, including coins and paper ...
  6. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
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