Measuring Spatial Price Level Differences within a Country: Current Status and Future Developments

Abstract

The importance of constructing sub-national purchasing power parities (PPPs) has been acknowledged in the literature for over two decades. In countries characterised by large territorial differences in prices and quality of products and household characteristics, calculation of sub-national PPPs can improve and serve as inputs for regular compilation of major indicators as spatial price index numbers, real per capita expenditure adjusted for price level differences across regions and estimates of inequality and poverty produced. This paper provides an overview of the data requirements and index number methods specifically designed for producing consistent set of spatial price comparisons; and a review of the attempts to compile sub-national PPPs around the world. Recent efforts by researchers in Italy in cooperation with the Italian Statistical Office (ISTAT) in the compilation of PPPs for regions in Italy are reviewed and preliminary results from these studies are presented. Finally, the paper scopes future efforts in this important area by discussing the opportunities and challenges offered by the availability of high-frequence point-of-sale data in the form of scanner data for the compilation of sub-national PPPs.