iPod Index

In 1923 Gustav Cassel ), Swedish economist depicted in his article Tract on Monetary Reform the idea of balance the power purchase of currencies from different countries on products. In his purchasing power parity (PPP) Cassel introduced the idea that, in an efficient market, identical goods must have only one price.

A purchasing power parity exchange rate is used to evaluate the purchasing power of different currencies in their home countries for a given basket of goods. A good example of one measure of PPP is the Big Mac Index, the price of Big Mac in different countries, quoted on July edition of The Economist Magazine as follows:

Big Mac Prices
In local currency / in dollars / Implied PPPt of the: / Actual dollar exchange rate July 2nd / valuation under(-), over(+) against dollar

United States $3,41 / 3,41
Argentina Peso 8,25 / 2,67 / 2,42 / 3,09 / -22
Australia A$ 3,45 / 2,95 / 1,01 / 1,17 / -14
Brazil R$ 6,90 / 3,61 / 2,02 / 1,91 / 6
China Yuan 11,0 / 1,45 / 3,23 / 7,6 / -58
Denmark Dkr 27,75 / 5,08 / 8,14 / 5,46 / 49
Hong Kong HK$ 12,0 / 1,54 / 3,52 / 7,82 / -55
Indonesia Rupiah 15,9 / 1,76 / 4,663 / 9,015 / -48
Japan ¥ 280 / 2,29 / 82,1 / 122 / -33
Sweden SKr 33,0 / 4,86 / 9,68 / 6,79 / 42
Switzerland SFr 6,30 / 5,2 / 1,85 / 1,21 / 53
Russia рубль 52,0 / 2,03 / 15,2 / 25,6 / -41
Thailand Baht 62,0 / 1,8 / 18,2 / 34,5 / -47
Venezuela Bolivar 7,400 / 3,45 / 2,17 / 2,147 / 1

Some products become obsolete, other products get modified and new goods and services appear. So the composition of the basket of goods could have products and services like:

Soft drink Coca Cola 50 cl, small plastic bottle
Cigarettes Marlboro Lights 20 cigarettes
Ice cream Magnum classic
Daily paper Newspaper 3 largest daily national newspapers
Condoms Durex Elite 12 pack
Nappies Pampers Easy Up Pants size 4 Maxi for 8-15 kgs or 18-33 lbs
Crisps Pringles Original Original size
Orange Juice Tropicana Orange juice, Pure Premium, Original 1 liter
Biscuits McVities. The Original Digestive. The original, 250g.
Pasta Barilla Spaghetti 500 gr
Dishwashing liquid Yes Original, 1 Liter
Fast food Hamburger Only the hamburger
Fast food Big Mac (Big Mac sandwich) Meal Meal (incl medium soft drink + chips)
Fast food Coffee Black coffee, size small
Fast food Muffin Medium sized chocolate muffin
Deodorant Biotherm, Spray Deodorant DEO FRESH Spray Deodorant
Perfume Poême, Eau de Parfum Spray Eau de Parfum Spray, 100 ml.
Liquor Absolut Vodka 70 cl
Liquor Jack Daniels Whiskey 70 cl
Champagne Veuve Clicquot Yellow Label, Brut 75 cl.
Bus Adult Bus ticket City Bus journey within one cityzone
Petrol Gasoline 1 litre, Unleaded 95

These special exchange rates are often used to compare the standards of living of two or more countries. The adjustments are meant to give a better picture than comparing gross domestic products (GDP) using market exchange rates. This type of adjustment to an exchange rate is controversial because of the difficulties of finding comparable baskets of goods to compare purchasing power across countries.

In order to try to fix this problem the Commonwealth Bank of Australia (the securities firm CommSec) introduced the iPod Index as a light-hearted method of measuring PPP. Unlike the Big Mac, which is affected by local labor and transport costs, the iPod manufacturing costs are the same and the iPod is a tradable commodity.

The CommSec iPod Index, based on January 2007 prices:

1. Brazil $327.71
2. India $222.27
3. Sweden $213.03
4. Denmark $208.25
5. Belgium $205.81
6. France $205.80
7. Finland $205.80
8. Ireland $205.79
9. UK $195.04
10. Austria $192.86
11. Netherlands $192.86
12. Spain $192.86
13. Italy $192.86
14. Germany $192.46
15. China $179.84
16. South Korea $176.17
17. Switzerland $175.59
18. New Zealand $172.53
19. Australia $172.36
20. Taiwan $164.88
21. Singapore $161.25
22. Mexico $154.46
23. U.S. $149.00
24. Japan $147.63
25. Hong Kong $147.35
26. Canada $144.20