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The World Price Index

Released: April 6, 2017

Ever Larger Undervaluation of German Euro
Brings Prospect of Grexit & Frexit Closer

  • German / Greek Euro valuation spread widens to 35%
  • German / French valuation now at 21%
  • Italian and Spanish valuation spreads at 10% and rising

Stress levels within the Eurozone continue to increase. While Greece is the most obvious pain point within the Eurozone, France, Italy and Spain all face increasing problems from direct linkage with the more competitive German economy via the Euro.

The chart on the right shows starkly the fundamental problem facing Greece. The ever increasing overvaluation of the Euro facing Greek companies, compared with the undervaluation of the common currency benefiting German exporters is leading to ever increasing and inescapable stress.

Over the past two years the percentage difference has almost tripled to the current 35% (first week of April).

Whilst the French overvaluation problem is not so great or increasing as rapidly as the Greek situation, the valuation spread between the undervalued German Euro and the overvalued French Euro has now reached 21%, a level at which problems are inevitable, and obviously reflected in the respective levels of French ( high ) and German ( low ) levels of unemployment. Already a significant factor in the upcoming French Presidential election, this is an issue that won't go away without major reform on the French side.

Italy and Spain
Both Italy and Spain face similar albeit smaller problems. Stress levels caused by the common currency are increasing. Although under/over Euro valuation levels are probably supportable at around 10% in both countries, Italy looks like becoming the next "domino" to suffer from the strength of the German economy as trends in overvaluation have become much more pronounced over the past 12 months.

About the World Price Index
The World Price Index (WPI) measures the value of an urban selection of goods and services at purchasing power parity (PPP), reflecting the real purchasing power of different nations, allowing for rapid and accurate international price comparisons. Under/Over valuation data is based on the difference between the exchange rate value of a currency and that of the US Dollar in relation to the World Price Index calculated exchange rate. Based on WPI global data the degree of currency under or over valuation in PPP terms by country is provided in the table and chart below.

For full database data, contact or call Ed Jones on: +44 (0) 207 326 8352.

Notes to Editors

  • The World Price Index is based on original data collected by World Economics.
  • The World Price Index is released on the 2nd Working Tuesday of each month.
  • Latest month market exchange rates are calculated as an average of daily rates.

About The World Price Index

The World Price Index is calculated monthly from a basket of internationally comparable goods and services. It is designed to alleviate the horrendous problems associated with analysing economic or market data using currency market exchange rates.

Exchange rates vary with extraordinary rapidity, frequently with little obvious link to economic reality, but fatally distorting the perception of value in markets and economies. It is vital when analysing international data, whether for market analysis purposes, or to allocate resources across the globe, to review data using an international yardstick of value. This can only be done using Puchasing Power Parities (PPP), which make allowance for the purchasing power of currencies within individual countries to make comparisons based on a standard currency, usually "international dollars".

There are various sources of PPP data, but most are of only academic interest as they are years out of date. The World Price Index is the only available index updated monthly to provide an easy way of reviewing trends or relative values of market or economic data in realistic terms.

About World Economics
World Economics is an organisation dedicated to producing analysis, insight and data relating to questions of importance in understanding the world economy. Its parent company Information Sciences Ltd has a long history of the development of key business information today used throughout the world, including the origination of the Purchasing Managers Indexes in Europe and Asia (now owned by Markit), and the development of WARC a global information provider for major corporations .

Currently our primary research objective is to encourage and assist the development of better and faster measures of economic activity. In cases where we believe we can contribute directly, as opposed to through highlighting the work of others, we are producing our own measures of economic activity.

Our work is mainly of interest to investors, organisations and individuals in the financial sector and to significant corporations with global operations, as well as governments and academic economists.

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