HP Innovation Journal Issue 12: Summer 2019 | Page 19

This rising inequality has the
potential to fuel social unrest,
spark deep political divides and
fuel nationalism, protectionism,
and even xenophobia.
This rising inequality has the potential to fuel social
unrest, spark deep political divides and fuel nationalism,
protectionism, and even xenophobia. It can also result in
increasingly protectionist labor and immigration policies
and should be considered as a possible disruptive factor in
the future of urban markets everywhere.
PURCHASE POWER PARITY: DETERMINING
SPENDING POWER AROUND THE WORLD
Given that it accounts for more than 90% of foreign exchange,
the U.S. dollar is considered to be the world’s de facto
currency. It is for this reason that economists and inter-
national financial organizations like the World Bank use
the U.S. dollar as a common measuring stick to compare
economic activity across different global markets. 11 To get a
realistic comparison of income in terms of spending power
for households in different markets, economists factor
in currency exchange rate differences and variations in
local costs of a similar basket of goods and services. This
comparison is often done by using what is known as the
PPP (Purchasing Power Parity) index. Published periodi-
cally, the PPP index converts local incomes and currencies
into one standard currency, U.S. dollars PPP, creating a
way to compare spending power in like terms across mar-
kets. People in developed markets who travel to emerging
markets for vacation often experience PPP firsthand, as
they perceive prices in these vacation spots to be much
less expensive than the prices they pay at home for similar
goods and services.
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