What this calculator does
Purchasing power parity, or PPP, is the exchange rate at which the same basket of goods costs the same amount in two different currencies. It is a way of asking what a currency is really worth in terms of what it can buy, rather than what a foreign exchange market happens to be trading it at on a given day.
This calculator works out the implied PPP exchange rate from a price you supply for an identical item or basket in two places, in the style of the well-known Big Mac Index. It then compares that implied rate against the actual market exchange rate, also entered by you, to show whether a currency looks over or undervalued against that basket. No rates are hard-coded, since real exchange rates and prices change constantly: every figure here is a free input you control.
The formula
Divide the foreign price of the basket by the home price to get the implied PPP exchange rate. Comparing that implied rate against the actual market exchange rate, as a percentage difference, shows how far apart the two are: a positive difference means the market rate sits above the PPP rate, a negative one means it sits below.
| Term | Meaning |
|---|---|
| Implied PPP rate | The exchange rate at which the two prices would be equal: foreign price ÷ home price. |
| Market exchange rate | The actual rate currencies trade at, entered as foreign currency per 1 unit of home currency. |
| Basket of goods | A specific item or bundle priced identically enough in both places to make the comparison meaningful, classically a Big Mac. |
The inputs explained
| Field | What to enter |
|---|---|
| Price at home, in home currency | The price of the basket at home, in home currency. |
| Price of the same basket abroad, in foreign currency | The price of the same basket abroad, in foreign currency. |
| Actual market exchange rate (foreign currency per 1 unit of home currency) | The actual market exchange rate, expressed as foreign currency per 1 unit of home currency. |
When to use it
Comparing living costs between two countries
Pricing the same item, such as a coffee or a fast-food meal, in two countries and working out the implied rate gives a rough sense of relative living costs that a single headline exchange rate does not capture.
Checking whether a currency looks cheap or expensive
The Big Mac Index and similar comparisons are widely cited exactly because they turn an abstract exchange rate into something people already understand: what a familiar item costs.
Understanding why a holiday feels cheap or expensive abroad
A currency trading well away from its PPP rate is part of why the same amount of money can feel like it stretches much further, or barely at all, once converted and spent in another country.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How the reading changes as the market rate moves around the PPP rate
A fixed pair of basket prices, giving an implied PPP rate of 0.8000, checked against a range of market exchange rates.
| Market exchange rate | Difference from PPP | Reading |
|---|---|---|
| 0.70 | -12.5% | Home currency looks overvalued against this basket |
| 0.75 | -6.25% | Home currency looks overvalued against this basket |
| 0.80 | 0.000% | Roughly in line with purchasing power parity |
| 0.85 | 6.25% | Home currency looks undervalued against this basket |
| 0.90 | 12.5% | Home currency looks undervalued against this basket |
| 0.95 | 18.7% | Home currency looks undervalued against this basket |
Questions
What does it mean if a currency is "undervalued" by this measure?
It means the market exchange rate lets you buy the same basket of goods for less than the basket costs when priced directly in the other currency. In the Big Mac Index framing, a currency reading as undervalued suggests it could, in theory, buy relatively more once converted.
Why use a single item like a Big Mac instead of a full basket of goods?
A single, near-identical item sold in many countries removes a lot of the complexity of comparing different consumption baskets across cultures. It is a simplification, not a complete picture, which is why it is treated as an illustrative index rather than a precise economic measurement.
Why is my result different from official PPP figures I have seen elsewhere?
Official PPP figures, published by organisations that track this over time, are built from large, standardised baskets of goods and services across an entire economy. This calculator uses whatever single price or basket you enter, so it will not match a broader official index unless you use comparable inputs.
Should I use this to decide whether to convert money?
No. This shows a gap between an implied and an actual exchange rate based on the prices you supplied; it says nothing about where rates are headed next. Exchange rates move on far more than relative prices, so treat this as a way to understand the concept, not as guidance for a financial decision.
For a currency conversion using your own agreed rate and fees, see the currency conversion fee calculator. To see what a fixed amount of money is worth after years of inflation instead, use the inflation and purchasing power calculator.