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FX Fundamentals: Purchasing Power Parity (PPP)

Long-run anchor that currencies converge toward equalising baskets — deviations can persist years with rates and risk premia.

Authored by·Editorially reviewed
Onur Erkan Yıldız
Founder, Financial Engineer · CMB-licensed

Overview

Absolute PPP compares price levels; relative PPP focuses on inflation differentials. Real rates and balance-of-payment shocks dominate medium-term FX.

Practical takeaway

PPP works better for commodity currencies and high-inflation pairs where goods arbitrage forces convergence.

How this connects to Finvestopia

Finvestopia FX majors pages and macro explainers pair PPP intuition with live spreads you must actually execute.

Related entries

Inflation (CPI/PPI) vs Interest Rates — Historical Linkages

Central banks lean against sustained inflation with tighter policy; the **Phillips-curve** slope and anchoring vary by decade.

Educational content authored by our team — informational only, not investment advice.