Tuesday, June 30, 2009
This is my chart of the purchasing power parity (PPP) of the euro versus the dollar. The green line is the PPP value of the euro, as I calculate it. It assumes a base year when prices in the U.S. and Europe were roughly comparable, and then adjusts that value according to inflation differentials between the U.S. and Europe. Since the line has an upward sloping trend, we know that Europe has for a long time had less inflation that we have had in the U.S.
Whenever the actual value of the euro is above the green line, the euro is "strong" relative to the dollar and U.S. tourists will find that things in Europe generally cost more than they do in the U.S. By my calculation, things cost roughly 20% more on average in Europe right now. If you go to Europe on vacation this summer, tell me if I'm right or not.
Posted by Scott Grannis at 6:46 PM