Cost of Living: Brazil vs. US Comparison

 Goods and services are priced differently in different countries. For instance, travelers frequently detect that the cost of a product in a foreign country can be significantly different from that of the same product in their home country when employing the market currency exchange rate to compare prices. In general, prices are lower in impoverished countries and higher in wealthier ones. This phenomenon is referred to as the Penn effect, and it explains why it is frequently more cost-effective to purchase goods in a relatively impoverished nation than in a relatively wealthy one. We frequently seek to account for price discrepancies when comparing revenues across the globe. In order to evaluate living standards, it is necessary to determine the amount of products and services that an income can purchase on a local level. Comparing incomes through market currency exchange may result in an inaccurate representation of the situation, as prices vary across countries. Rather, we employ purchasing power parity (PPP) exchange rates, which account for the varying costs of purchasing a comparable basket of products and services in each country.

What are public-private partnerships (PPPs)

PPPs are a simple way to quantify the total quantity of products and services that a single unit of a country's currency can purchase in another country. By collecting and analyzing data on the prices of the same products and services across multiple economies, PPPs are determined by comparing the price of one good in one country to that of another. Consequently, public-private partnerships (PPPs) can be employed to convert the cost of a basket of products and services into a unified currency known as "international dollars." The International Comparison Program (ICP) estimates PPPs by conducting a comprehensive price collection exercise that encompasses a vast "basket" of numerous comparable products and services in more than 175 economies. This endeavor assists consumers, policymakers, and analysts in gaining an understanding of the relative purchasing power of a variety of currencies in different countries. The significance of these purchasing power parities exchange rates is demonstrated below, as they are applied to a variety of data types in the WDI and other sources.

Are all individuals who earn less than $1.90 per day classified as extremely impoverished

The World Bank uses an international poverty limit of $1.90 per day to quantify global poverty. However, the value of $1.90 in local currencies at market exchange rates can vary significantly depending on the location of the expenditure. PPPs are employed to guarantee that the poverty line accurately depicts the same level of material deprivation (or well-being) in all countries worldwide. For instance, in 2011, $1.90 is equivalent to approximately 169 Kenyan Shillings at market exchange rates. Nevertheless, the PPPs for private consumption indicate that in Kenya, 169 Kenyan shillings can purchase the equivalent of $4.8 USD in the United States. Kenya's $1.9 is more valuable than the United States in terms of products and services. Consequently, the poverty line is converted into Kenyan Shillings using the PPP exchange rate of 35.4 (rather than the market exchange rate of 88.8) to guarantee that the poverty line is approximately equivalent in terms of the products and services it can purchase.

If we compare the Gross Domestic Product (GDP) at market exchange rates, the United States is the world's largest economy. China, Japan, and India are the countries that follow the United States. Nevertheless, these rankings are not valid when we compare them using purchasing power parities. In comparison to the United States, China's economy was 25% larger in 2017 and surpassed it to become the largest economy in 2013. In 2009, India's economy surpassed that of Japan. The solid lines and the dotted lines in the figure below illustrate the change effect of adjusting for the priced differences. The PPP adjustments also enable us to compare health expenditure among various countries. The Bahamas spent the most on health in Latin America and the Caribbean in 2015, with an estimated $1685 per person in US dollars. Trinidad and Tobago spent $1150. Nevertheless, Trinidad and Tobago effectively spent more on health per person than The Bahamas when we account for the cost of living. This is due to the fact that products and services are more affordable in Trinidad and Tobago. In 2015, they expended more than $2200 per person on health care, while The Bahamas spent nearly the same amount, $1700 per person.

These examples demonstrate the International Comparison Program's ability to facilitate

the development of numerous meaningful economic data comparisons. The WDI employs ICP to adjust a variety of data series, including but not limited to poverty and GDP, as well as health and education expenditure and energy consumption. The calculations underlying the PPP measure are frequently intricate, despite the fact that these comparisons are relatively straightforward to make with the available data. Defining which products and services to include in the calculations and identifying comparable items across all economies is a complex task in itself. Furthermore, the data collection procedure is decentralized, which results in a significant variation in data quality. Nevertheless, the data has been enhancing over time, thereby allowing us to make more accurate comparisons. The objective of each new edition of the ICP is to enhance the methodology employed, thereby facilitating more accurate comparisons. The domestic Consumer Price Indices are used to extrapolate the most recent PPP conversion factors for subsequent years, which are built upon prices collected in 2011. A new round will be conducted in accordance with the pricing of 2017.