In 2017, Egypt’s average income per person was about $2,200. In Japan, it was about $31,200, almost 14 times more. So can the average Japanese person actually buy 14 times more stuff than the average Egyptian? Not even close, according to the World Bank’s recently released cost of goods and services statistics.
Every six years, the International Comparison Program, a project led by the World Bank, collects data on prices across the globe. It is the biggest statistical program in the world, including about 200 countries, according to the economist Nada Hamadeh, who manages it. Without this data, it would be nearly impossible to compare the levels of poverty and well-being of people across the world.
The latest data, for 2017, demonstrate the huge disparities in the cost of living between countries. Japan was five times more expensive than Egypt. This means that the amount the average Japanese person could buy was about three times more than the average Egyptian. It’s still a big difference, but not as massive as it might appear at first glance.
The most expensive country in the world in 2017 was Bermuda, with prices about 105% above the global average. Bermuda was followed by Iceland, Norway, Switzerland, and the Cayman Islands. These are all very rich countries, where labor is costly, a major contributor to high prices. It is no coincidence that three of the top five are islands, which makes importing goods to these places extra expensive. The least expensive countries were poor nations like Eritrea (76% less expensive than average), Egypt (73%,) and Ukraine (67%).
The idea of evaluating the price level of a country when considering its wealth goes back to scholars in 1500s in Spain. It was introduced to modern economics by the Swedish economist Gustav Cassel in 1918, who wanted to understand how inflation had affected the cost of living in European countries after World War I. It has since become commonly accepted that to understand the living conditions of a group of people, it is important to look at prices, not just income. When researchers use price data to adjust income or gross domestic product (GDP) statistics, it is now usually referred to as accounting for “purchasing power parity.”
Generating price statistics is not easy. The World Bank works with the statistical agencies of each country to gather prices on a set of commonly purchased goods across the world (pdf). For example, data is collected on the cost of rice, gas, TVs, and housing. The researchers’ goal is to collect prices for similar types of goods of more or less the same quality.
The measurement for the overall price level of a country is not simply comparing a similar basket of goods across all countries, but also accounts for what locals tend to buy. People in China eat a lot of pork, so the price of pork plays a bigger role than beef in determining China’s overall price level. The amount of any product that is included in a price level calculation is determined by examining surveys of household expenditures for that country.
The World Bank also releases data on the price level by major product type. The data show that not only do overall price levels vary across countries, but even within countries, the price differences with the rest of the world fluctuate widely depending on the product or service. For example, in the UK, the cost of “transport” was 39% higher than the global average, but the cost of “food and beverages” was only 7% higher. These differences are often due to government policies, like trade barriers or business subsidies, that raise or lower prices for industries. Generally though, prices tend to be relatively higher in rich countries for goods and services that involve a lot of labor, like prices at restaurants and hotels, and relatively lower for commodities like food and clothing.
The chart below shows the relative costs of different product groups for the 30 most populous countries in the world, and if you hover over a dot it will highlight the cost of that good across all countries.