World Economics - Insight , Analysis and Data

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The World Price Index

Released: November 10, 2015

WPI & SMI data are good estimates of Indian consumer and wholesale inflation

  • Indian Rupee at 33% undervaluation as economy grows
  • Chinese Yuan is 15% undervalued while monetary conditions loosen
  • Euro slips into undervaluation, but country differences remain

Indian WPI as a gauge for Consumer Price Inflation (CPI) 
World Economics data indicates in a more timely fashion the direction of inflationary pressures in the Indian economy compared to official data. India has two main price indexes, the CPI, which tracks consumer prices with an emphasis on purchases in urban areas and the Wholesale Price Index, which monitors producer prices. Changes in these indexes, as tracked by the Indian statistics office, can be estimated on a monthly basis by the WPI (World Price Index) and the Prices Charged (Manufacturing) component of the Indian Sales Managers Index respectively, but well ahead of official data releases.

The latest set of World Price Index (WPI) data indicates that the Indian Rupee remains undervalued by 33% against the US Dollar in Purchasing Power Parity terms. This is based on an evaluation of the real purchasing value of the Indian currency in terms of the domestic cost of a basket of goods compared with a similar basket in the US. The World Price Index indicates that CPI inflation is likely to continue increasing over the next few months, while SMI data indicates that WPI could soon turn upwards. The World Economics WPI shows that domestic prices are rising steadily while the Indian SMI Prices Charged Index reports factory output prices rising. The cause is Indian demand expanding as official data shows that the Indian economy continues to grow strongly at around 7% year-on-year in real terms.

Yuan remains undervalued
World Price Index data in November reports that the undervaluation of China’s currency has changed marginally from 16.9% in PPP terms in October to 16.4%. The market Yuan to dollar exchange rate was 6.35 compared to an implied PPP rate of 5.31. The continuing weakness in the value of the Chinese currency along with expansive monetary policy supports the accusation by many in the US that the Chinese authorities are deliberately keeping the currency undervalued to please Chinese exporters. With dollar interest rates still expected to rise in the coming months, the Chinese currency is expected to remain soft in PPP terms. Research derived from the World Economics China Sales Managers’ Index (SMI) in October found that only 15% of Chinese Businesses polled agreed that the value of the currency was harming their sales.

Euro slips to undervaluation
The latest set of World Price Index (WPI) data indicates that the Euro is undervalued by 0.5% against the US Dollar in Purchasing Power Parity terms. In November the nominal exchange rate was Euro 0.92 to the US$ compared to a World Price Index rate of 0.91, based on the average of the leading Eurozone countries monitored – Germany, France, Italy and Spain. In October the Euro was 2.2% overvalued against the dollar, but at the end of the month the European Central Bank indicated that it was prepared to deepen its quantitative easing programme in December.

The impact of monetary loosening on growth and inflation in the Eurozone will be blunted, however, by the large internal inconsistencies that still remain due to the wide variation in the purchasing power of the currency between its main member countries. In November, for example according to WPI data while the value of the Euro in Germany was 8.0% undervalued, its value in France based on domestic prices was 10.5% overvalued. The value of a Euro in Italy was 3.7% undervalued while in Spain it was 0.9% undervalued. Unless the stagnant French economy shows greater flexibility in its domestic prices, the ECB’s loosening will only push down the nominal value of the Euro without impacting fully on inflation and growth across the monetary zone.

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.


To Receive World Price Index Data
The WPI provides a monthly index of PPP exchange rates against the US Dollar across the world’s 15 largest economies.

To request WPI data for this report, please contact: citing: 
"WPI Data”

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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