(Andrzej Rostek/Getty Images) Setting the record straight on Purchasing Power Parity.
The year 2020 ended with an inflation bang in the 14 countries listed on Hanke’s Inflation Dashboard. To qualify for entry, a country had to end the year with an annual inflation rate of 25 percent or more. I made the measurements of each country’s inflation by using high-frequency, free-market exchange-rate data in combination with Purchasing Power Parity (PPP) theory. For countries with elevated inflation rates, the PPP method has proven very accurate and reliable.
It is important to stress that my PPP inflation measures diverge from the last recorded official measures for each country (see the table below). For example, the accurate PPP inflation rate for Argentina on December 31, 2020, was 120 percent per year, whereas the last officially reported inflation rate, for November 2020, was 35.8 percent per year. Why was there such a huge gap between my PPP measurement and the of