World Economics - Insight , Analysis and Data

World Economics - Insight , Analysis and Data


The World Price Index

Released: April 15, 2014

Japanese Yen overvaluation falls to 12%

  • French Euro remains worlds most overvalued major currency
  • Brazilian Real regains strength ahead of major international events
  • Russian Rouble undervaluation falls from -9% to -6%




The World Price Index
The World Price Index (WPI) measures the value of an urban selection of goods and services at purchasing power parity, 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.

Download the full report, methodology, applications and theory.


Eurozone
The French Euro continues to be significantly overvalued compared to the US Dollar. This overvaluation has been climbing over the past few months.

The Eurozone has large internal inconsistencies due to the wide variation in the purchasing power of the currency within the Eurozone. The Euro in France is overvalued by 35.3% in relation to the US Dollar. In contrast, the Euro in Germany is only marginally overvalued at 9% on the same measure.

This inevitably imposes great strains on some members of the currency union. The ‘Single Market’ concept clearly is still some way from reality, notably in the increasingly fragile French economy.


Chinese Yuan Renminbi
The World Price Index Yuan PPP value for April is 5.67, compared to the market exchange rate of 6.10. Therefore, the Yuan remains undervalued, falling from -8% in March to -8.1% in April. This undervaluation will continue to have an effect on trade and businesses.

This sentiment is echoed by the Yuan valuation question asked by the World Economics Sales Managers’ Index (SMI) each month. In the April results, 26% of respondents from all sectors of the Chinese economy believed the valuation of the Yuan was having a negative effect on their business.


Japanese Yen
In December 2012 Prime Minister Abe of Japan made one of his priorities the devaluation of the Yen against the US Dollar. The World Price Index at that point showed that the Japanese Yen was overvalued against the US Dollar by 80%.

In the latest April 2014 World Price Index report, the overvaluation has fallen to 12%.

This rapid devaluation is believed to have been achieved through a combination of loose monetary policy, fiscal stimulus, and falling unemployment.


Russian Rouble
In the April World Price Index the Rouble undervaluation was -6%. This is a slight increase from the 14 month low of -9% in March. Political instability in the region continues to exhibit variations in price inflation and the value of Rouble.


Indian Rupee
The April report notes that the Indian Rupee remains the worlds’ most undervalued major currency at -34%. This is bad news for importers of foreign goods, but suggests the market for the key Indian exports sector remains strong.


Brazilian Real
The Brazilian Real has experienced a year of declining strength. The World Price Index is congruent with the exchange rate against the US Dollar which shows a year of declining value. The Real has appreciated slightly in recent months but still remains below levels of long term overvaluation.
 



















Notes to Editors
  • The World Price Index is based on original data collected by World Economics. The index is in its beta release phase where adjustments to the methodology may be made in the future.
  • The World Price Index is released during the second working week of each month.
  • Latest month market exchange rates are calculated as an average of daily rates

About the WPI
The World Economics World Price Index is designed to provide a timely and practical solution to the problems posed by international comparisons. It is intended for companies that transact across countries and currencies, for governments and for international non-governmental institutions. 

The key difference between the World Price Index and other international PPP comparisons is the timeliness of the data. WPI figures are released the same month they are collected. This means WPI data is the most up-to-date exchange rate adjustment mechanism available. 


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. 

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. 

The World Price Index has been developed by World Economics, a leading provider of original economic data and comment. Sister products include the World Economics Journal, the Sales Managers’ Indexes, the Global Marketing Index, and the Country Growth Monitors.

World Economics welcomes your feedback, which should be addressed to Amelia.Myles@worldeconomics.com.

You can follow World Economics on Twitter and Facebook.

 
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There are 5 comments on this paper.
(Have an opinion? Add your Comment above)

World Economics
184 days ago
The World Price Index doesn't attempt to calculate labour costs or subsidies, it’s a PPP conversion factor which compares the end user cost of the same basket of goods from a country against the United States. In theory import/export costs, labour and subsidies should already be part of the price that users are required to pay at checkouts. The World Price Index is calculated against the basket of goods in the United States as this is the world’s largest economy and largest reserve currency. The data research/capture is conducted using consist methods as currently used with CPI research to aid comparisons. As the WPI is indexed against the USD it follows that the USD always has an exchange rate of 1:1 against itself. However, this does mask the fact that we have seen the cost of the basket of goods in the US has fall by -1% on average over the capture period.

sdgreen
184 days ago
I find this report really confusing and I am not certain collected data reflects the real world conditions. In the first place the entire US economy is in a state of artificiality and such comparisons are really not valid. Secondly I see no where in the report on the effect of individual state subsidies for commodities that have a dramatic effect on the CP!, thirdly the effect of labour costs are not well enumerated with also have a dramatic effect one costs, and finally there does not seem to be any attempt to look at imports/export costs with also have a huge effect. Confidence in this report is suspect at best.

World Economics
322 days ago
Derek, The World Economics WPI is not created using any third party data. World Economics researches the prices that make up the basket of good which we have selected and the calculations are performed in house. For a full breakdown of the methodology please the full report. The WPI is calculated monthly with our start month of January 2011 being represented by the index value of 100. We do not use any World Bank data.

Derek Blades
322 days ago
I am pqrticularly interested in your WPI.  My understanding is that this is acually the latest PPP with US = 100 taken from World Bank sources - probably WDI.  Is that correct?

Itidal Agha
474 days ago
WPI looke like a more accurate and up todate as it releases a monthly data, But it is for the top ten economies of the world which counts as 60% of the total world GDP, if the sample size is larger it would make the calculation more accurate. And the monthly release of data might be affected by the external factors and the unpredictable economic and natural factors that might affect the world economic activity.




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