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The World Price Index

Released: June 9, 2015

WPI shows the Brazilian Real weakens from a valuation of -2% to -4% in June

  • June WPI data provides solid backing for US view that Yuan is undervalued
  • Chinese Yuan 14% undervalued.
  • Greek Euro 22% overvalued; German Euro 6% overvalued.

The Brazilian Real weakened from an undervaluation of 2% in May to 4% in June. The market exchange rate continued to depreciate steadily with one dollar buying Real 3.05 in May and Real 3.15 in June. The reasons lie in a string of bad news from poor Q1 GDP data falling by 1.6% year on year and inflation edging up to 8.1% in April topped by the ongoing corruption scandal at Petrobras, the state-owned oil company. Meanwhile, domestic price changes in Brazil meant that one US$ had effective purchasing power of only Real 3.02 in June against Real 2.98 in May.

The methodology behind the WPI involves collecting price data for a representative basket of goods across different countries. This allows the measurement of the real purchasing value of national currencies across the world in terms of their relative purchasing power against a comparable basket of goods in the US. For example, in June while the market foreign exchange rate stood at one US$ to Yuan 6.20, the WPI rate was one US$ to Yuan 5.32 based on the real purchasing value of the Chinese currency. This indicates an undervaluation in PPP terms against the dollar up by only 1% against the value in May. -4.4%).

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