Glossary · Currency

Purchasing power parity (PPP)

An exchange-rate concept where a unit of currency buys the same basket of goods in any country — used to compare salaries internationally.

Purchasing power parity (PPP) is a theoretical exchange rate at which the same basket of goods costs the same in every country. If a Big Mac costs $5 in the US and £3.50 in the UK, the PPP-implied rate would be ~$1.43/£ regardless of the market exchange rate.

PPP is what makes international salary comparisons meaningful. A nominal €50,000 in Berlin is not the same as a nominal €50,000 in Lisbon — the latter has higher purchasing power locally. Mundevo's cost-of-living index is essentially a PPP measurement: it tells you how far your money goes in each city relative to NYC.

Where PPP breaks down: imported goods, international travel, and savings that you'll spend abroad. If you plan to retire in a different country than you earn in, PPP at the earning location matters less than PPP at the destination. Build your scenarios around where you'll actually spend the money.

Where Mundevo uses this

Methodology — /methodology

Related terms

Cost-of-living index

A single number that scores how expensive a city is, normalized so New York City = 100.

FX rate

The market price of one currency in terms of another — fluctuates daily and affects cross-currency salary comparisons.

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