Following up on our Cost of Living and Salaries in Spain posts, in this entry I will further analyse how far you can go with your money. An initial figure for that is the Purchasing Power Parity (PPP).
According to thebalance.com, by using the Purchasing Power Parity (PPP) the problem of comparing countries with different standards of living is solved. How? By recalculating the value of a country’s goods and services as if they were being sold at U.S. prices.
That is the reason for the CIA to provide Gross Domestic Product (GDP) estimates on both an official exchange rate and a PPP basis. In that sense, the agency estimates that Spain’s GDP (PPP) in 2017 was $1.769 trillion vs a GDP (exchange rate) of $1.307 trillion, essentially pointing us that $100 in the US would buy around $135 in Spain of basic day-to-day items. Under this is very high-level approach, if you make $1000 per month in the US, you would expect to make $738 per month in Spain, therefore also signalling lower salaries in this country in raw numbers.
A practical visualisation of the PPP comes from The Economist’s Big Mac index. In it, that burger’s price in January 2018 in the US was $5.28, compared with $4.84 (€3.95) in the Euro zone where Spain is included, making the Big Mac 8.4% cheaper in our country.
From the housing perspective, that publication also provides deep insights through its House-Price index. When looking at the “prices against average income” (comparing house prices against average disposable income per person, where 100 represents the long-run average), we observe that it had a deep decline in the years following 2017 but it is still over what it should be expected from an historical perspective (+16%). From the “prices against rents” perspective, we also find that is higher that it should be from that long-term view (+25%).
As it happens everywhere, higher property prices lead to higher rents. These figures warn us that in this land you will be putting aside (proportionally and even in raw numbers) more money for your accommodation (no matter whether you buy or rent) than in most places.
Numbeo also provides also an interesting comparison between the UK and Spain, highlighting that prices (basic goods and services, rents, restaurants) are between 20% and 50% higher in the former. Contrarily, the local purchasing power is 20% higher in Great Britain and Northern Ireland, being explained by a 57.4% higher average monthly net salary.
Interestingly, when comparing in that web page the two capitals, the local purchasing power is 2% higher in Madrid, being mainly explained by London’s skyrocketing rent prices (125% higher).
If you are interested in having a worldwide perspective on that index from Numbeo, I encourage you to view their Global Purchasing Power Index. There is a clear correlation between how developed a country is and its purchasing power. Spain’s cities are mostly present a middle (yellow and orange) purchasing power over East Europe (red) but below Northern Europe and British Isles (green).
In future posts we will approach what you are supposed to need for having a ‘decent’ life here with different scenarios.
How do you feel about what you get with your income in Spain? What is it like in your place of origin? Any other indicator worth considering?
@CIA @Numbeo @TheEconomist, thanks a million for your valuable information. Hopefully these quotes will encourage some people (including myself) to subscribe to the latter!
Links of Interest:
CIA, GDP (Purchasing Power) per country
CIA, The World Factbook – Spain
Numbeo, Cost of Living Comparison Between Spain and United Kingdom
Numbeo, Global Purchasing Power Index
The Balance, Purchasing Power Parity
The Economist, The Big Mac index
The Economist, House-Price index
Photos: Hanging chilis in Barcelona’s market. Rural house in Canary Islands. Numbeo’s Global Purchasing Power Index for Europe.