Comparative price levels of consumer goods and services - Statistics Explained
    

Comparative price levels of consumer goods and services


Data from June 2018.

Planned update: December 2018

Highlights
Highest price level for consumer goods and services among the EU Member States in Denmark (42 % above the EU average) and lowest in Bulgaria (52 % below the average) in 2017.
Denmark was the most expensive EU Member State for food and non-alcoholic beverages and Sweden for clothing in 2017.

Price level index for household final consumption expenditure (EU-28=100), 2017

This article presents the most recent analysis of price levels for consumer goods and services in the European Union (EU), focusing on price level indices (PLIs), which provide a comparison of countries' price levels relative to the EU average and are calculated using purchasing power parities.

The results are based on price surveys covering more than 2000 consumer goods and services which were conducted across 38 European countries participating in the Eurostat-OECD Purchasing Power Parities (PPP) program. The group of participating countries includes the 28 EU Member States, three EFTA countries (Iceland, Norway and Switzerland), five candidate countries (Montenegro, the former Yugoslav Republic of Macedonia, Albania, Serbia and Turkey) as well as one potential candidate (Bosnia and Herzegovina) and Kosovo[1].

Full article

Overall price levels

In 2017, price levels for consumer goods and services differed widely across Europe. The highest price level among EU Member States was observed in Denmark, 42 % above the EU average, while in Bulgaria the price level was 52 % below the EU average.

An understanding of the differences in price levels is important in the comparison of economic data, such as gross domestic product (GDP), because higher relative prices could make an economy look healthier than it really is. Observing price level differences is also important in the analysis of the development of the EU's single market for goods and services.

Figure 1 shows the price level indices (PLIs) for total household final consumption expenditure (HFCE) on goods and services in 2017. Iceland and northern European countries tend consistently to have the highest prices, while south-eastern European countries show the lowest prices.

Figure 1: Price level index for household final consumption expenditure (HFCE), 2017, EU-28=100 - Source: Eurostat (prc_ppp_ind)

Price levels for food, beverages, tobacco, clothing and footwear

Table 1 shows the PLIs for four important groups of consumer goods and services (see below for a description of the content of each product group):

  • food and non-alcoholic beverages;
  • alcoholic beverages and tobacco;
  • clothing;
  • footwear.

These four groups represent on average 18 %, 5 %, 4 % and 1 % of household expenditure, respectively. For reference, the PLIs of total HFCE (those of Figure 1) are also shown.

The shaded fields indicate the highest and lowest PLIs per product group among all 38 participating countries. The highest and lowest PLIs among the 28 EU Member States are marked in bold.

At the bottom of the table, variation coefficients are provided for the euro area (EA-19), the pre-2004 EU Member States (EU-15), the EU as it is now (EU-28) and the group of all 38 countries participating in the programme (All 38).

The variation coefficient is defined as the standard deviation of the PLIs of the respective group of countries as a percentage of their average PLI. The higher the variation coefficient for a given product group, the higher the price dispersion across countries.

Among the EU Member States, Denmark is the most expensive for food and non-alcoholic beverages as well as for footwear, while for clothing, Sweden is the most expensive country. Ireland has the highest PLI for alcoholic beverages and tobacco. Among all countries, Switzerland has the highest price level for food and non-alcoholic beverages and Iceland for alcoholic beverages and tobacco, clothing and footwear.

The former Yugoslav Republic of Macedonia shows the lowest price level of all 38 countries for food, beverages and tobacco, while Turkey is the least expensive of the participating countries for clothing and footwear. Among the EU Member States, Romania is the least expensive country for food and non-alcoholic beverages and Bulgaria for alcoholic beverages and tobacco as well as for clothing and footwear.

The highest price dispersion is found for alcoholic beverages and tobacco. This is mainly due to large differences in taxation on these products across the 38 countries. Much less dispersion is apparent in the prices of clothing and footwear.

Price dispersion is naturally greatest within the 38 country group, which includes both the high price EFTA countries and the (mostly) low price candidate countries.

Table 1: Price level index for food, beverages, clothing and footwear 2017, EU-28=100 - Source: Eurostat (prc_ppp_ind)

Price levels for energy, furniture, household appliances and consumer electronics

Table 2 shows the PLIs for another four groups of goods and services (see below for a description of the content of these groups):

  • energy (electricity, gas and other fuels);
  • furniture and furnishing, carpets and other floor coverings;
  • household appliances;
  • consumer electronics.

These groups represent on average 5 %, 2 %, 1 % and 1 % of household final consumption expenditure, respectively.

Price dispersion varies significantly between these four product groups, being most pronounced for electricity, gas and other fuels. Here, Denmark is by far the most expensive and Albania the least expensive of all 38 participating countries, while the lowest price level for this category in the EU is reported for Romania.

For the other three categories shown in this table the price dispersion is much lower – especially for consumer electronics.

Among EU Member States, Luxembourg shows the highest price levels for furniture and furnishings and Bulgaria the lowest. For household appliances Malta is the most expensive country among EU Member States, while Denmark and France have the highest PLI for consumer electronics. Among all 38 countries, Iceland is the most expensive for furniture and furnishings, household appliances as well as for consumer electronics. The lowest prices for household appliances are reported in Poland and for consumer electronics Ireland is the least expensive EU Member State in this category.

Table 2: Price level index for electricity & gas , furniture, household appliances and consumer electronics, 2017, EU-28=100 - Source: Eurostat (prc_ppp_ind)


Price levels for personal transport equipment, transport services, communication, restaurants and hotels

Table 3 shows the PLIs for another four groups of goods and services (see below for a description of the content of these groups):

  • personal transport equipment;
  • transport services;
  • communication (services and equipment);
  • restaurants and hotels.

These groups represent on average 3 %, 3 %, 3 % and 9 % of household final consumption expenditure, respectively.

Price dispersion for personal transport equipment is not very significant. Among all 38 countries, only Denmark and Norway stand out with very high PLIs for this category. This is due to high taxation levels on cars in these countries. The lowest prices were found in the Albania while Slovakia is the least expensive EU Member State for this product group.

Price dispersion is significantly higher among the three service categories (transport services, communication as well as restaurants and hotels). In general, prices for services tend to show larger differences across countries than prices for goods, due to the higher share of labour input into services and the high dispersion of wages across countries.

Concerning transport services, Iceland shows the highest PLIs among all countries while the Netherlands reports the highest prices among EU Member States. The lowest price level among all countries is observed in Albania while Bulgaria is the least expensive EU Member State in this category.

Among all 38 countries the highest price level for communication can be found in Greece and the lowest in Poland.

Finally, Iceland and Norway stand out with the most expensive restaurants and hotels, while the lowest prices for these services are observed in Albania. Among the EU Member States, these positions are taken by Denmark and Bulgaria respectively.


Table 3: Price level index for personal transport equipment, transport services, communication and restaurants & hotels, 2017, EU-28=100 - Source: Eurostat (prc_ppp_ind)

Price convergence

Figure 2 shows the development over time of the variation coefficient of the PLI for total household final consumption expenditure for four country groups. A decrease of the variation coefficient is an indication of price convergence. It can be seen that between 2007 and 2008 there was a clear decrease of the variation coefficients for all country groups except EU-15. Between 2008 and 2017, all four country groups exhibit slight increases in this indicator, except EU-28. For all country groups except EA-19 this can be partly explained by the impact of exchange rate fluctuations.

Figure 2: Price convergence - variation coefficient of price level indices of final household consumption expenditure, 2007-2017
Source: Eurostat (prc_ppp_conv)

Data sources

The full methodology used in the Eurostat-OECD Purchasing Power Parities (PPP) programme is described in the 'Eurostat-OECD Methodological Manual on Purchasing Power Parities' available free of charge from the Eurostat website.

The PPP concept

In their simplest form, PPPs are price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. For example, if the price of a hamburger in France is EUR 2.84 and in the United Kingdom it is GBP 2.20, the PPP for hamburgers between France and the United Kingdom is EUR 2.84 to GBP 2.20, or EUR 1.29 to the pound. In other words, for every pound spent on hamburgers in the United Kingdom, EUR 1.29 would have to be spent in France in order to obtain the same quantity and quality – or volume – of hamburgers.

Published PPPs, usually refer to product groups or broad aggregates like gross domestic product (GDP) rather than to individual products. However, these aggregate PPPs are based on sample surveys of individual goods and services.

Price level indices

The results of these surveys are expressed in the form of price level indices (PLIs). PLIs are the ratios of PPPs to exchange rates. They provide a comparison of countries' price levels relative to the European Union average: If the price level index is higher than 100, the country concerned is relatively expensive compared to the EU average, while if the price level index is lower than 100, then the country is relatively inexpensive compared to the EU average. The EU average is calculated as the weighted average of the national PLIs, weighted with expenditures from national accounts.

Price level indices are not intended to rank countries strictly. In fact, they only provide an indication of the order of magnitude of the price level in one country in relation to others, particularly when countries are clustered around a very narrow range of outcomes. The degree of uncertainty associated with the basic price data and the methods used for compiling PPPs, may affect in such a case the minor differences between the PLIs and result in differences in ranking which are not statistically or economically significant.

Organisation

Within the framework of the Eurostat-OECD Purchasing Power Parities (PPP) programme, surveys on prices of household goods and services are carried out cyclically by the National Statistical Institutes (NSIs) of 38 countries. Each survey cycle comprises six surveys, each related to a particular group of household consumption products. As two surveys are carried out per year, the whole survey cycle takes three years to complete, before the next cycle starts.

The PLIs in this article are thus based on price data collected in 2015, 2016 and 2017. The prices collected in 2015 and 2016 have been updated to 2017 using detailed consumer price indices. The PLIs are based on annual national average prices for in total more than 2000 goods and services. The expenditure shares are based on national accounts data for 2017 and represent the average over all participating countries. The national accounts data are also used as weights in the aggregation of detailed PLIs to aggregate PLIs such as for household final consumption expenditure.

Definition of the product groups

The product groups discussed in this article can be broadly described as follows.

  • Food and non-alcoholic beverages: bread and cereals; meat; fish; milk; cheese; eggs; oils and fats; fruits; vegetables; potatoes; other food; non-alcoholic beverages.
  • Alcoholic beverages and tobacco: spirits; wine; beer; tobacco.
  • Clothing: clothing materials; men's, women's, children’s and infant’s clothing; other articles of clothing and clothing accessories (excludes cleaning, repair and hire of clothing).
  • Footwear: men's, women's, children's and infants' footwear (excludes repair and hire of footwear).
  • Electricity, gas and other fuels: electricity; gas; liquid fuels; solid fuels; and heat energy (all for domestic use).
  • Furniture and furnishing, carpets and other floor coverings: kitchen furniture; bedroom furniture; living-room and dining-room furniture; other furniture and furnishings; carpets and other floor coverings (excludes repair of furniture, furnishings and floor coverings).
  • Household appliances: refrigerators and freezers; washing machines; dishwashers; cookers; microwave ovens; vacuum cleaners; coffee makers; kettles; toasters, etc. (excludes repair of household appliances).
  • Consumer electronics: televisions; DVD players; receivers; audio systems; MP3 players; cameras; desktop and laptop computers; monitors; printers; scanners; software; music CDs; movie DVDs; empty CDs and DVDs etc (excludes repair of such equipment).
  • Personal transport equipment: motor cars; motor cycles and bicycles (excludes maintenance and repair of personal transport equipment, spare parts and fuels).
  • Transport services: Passenger transport by railway, by road, by air, by sea and inland waterway and other purchased transport services (e.g. left luggage services, removal services).
  • Communication: postal services; telephone and telefax equipment; telephone and telefax services.
  • Restaurants and hotels: restaurants; cafés; pubs; bars; canteens; hotels; youth hostels etc.

Context

Purchasing power parities (PPPs) are indicators of price level differences across countries. PPPs tell us how many currency units a given quantity of goods and services costs in different countries. PPPs can thus be used as currency conversion rates to convert expenditures expressed in national currencies into an artificial common currency, the purchasing power standard (PPS), eliminating the effect of price level differences across countries.

The main use of PPPs is to convert national accounts aggregates, like the gross domestic product (GDP) of different countries, into comparable volume aggregates. Applying nominal exchange rates in this process would overestimate the GDP of countries with high price levels relative to countries with low price levels. The use of PPPs ensures that the GDP of all countries is valued at a uniform price level and thus reflects only differences in the actual volume of the economy.

PPPs are also applied in analyses of relative price levels across countries. For this purpose, the PPPs are divided by the current nominal exchange rate to obtain a price level index (PLI) which expresses the price level of a given country relative to another, or relative to a group of countries like the EU-28.

The common rules for the provision of input data, and for the calculation and dissemination of PPPs, are laid down in Regulation (EC) No 1445/2007 of 11 December 2007.

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Comparative price levels (tec00120)
Price and volume convergence between EU Member States (tec00121)
GDP per capita in PPS (tec00114)
Purchasing power parities (PPPs), price level indices and real expenditures for ESA2010 aggregates (prc_ppp_ind)
Convergence indicators (prc_ppp_conv)

Notes

  1. This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Declaration of Independence.