PPP is an increasingly irrelevant notion in a globalized, digital, and immigration-friendly world. An iPhone or a Toyota Corolla costs the same in the US as it does in China. There is no remarkable arbitrage with real estate either - you're paying for the location and everything that comes with it. There is no secret city where the rent is low, there are plenty of well-paying jobs, you enjoy freedom of speech and can be reasonably sure the milk isn't tainted with melamine (tangent: due to strict US immigration policies and corporate RTO, the Bay Area comes close).
PPP suffers from the same problem that "basket of goods" CPI suffers from in that it doesn't account for differences in quality:
- of course a car costs more today than it did in 1980, it's a far better car
- of course a loaf of bread costs more in California than it does in India - I have certain guarantees about the pesticide levels in the wheat, the accuracy of the labeling, and my ability to seek damages from the legal system in case I chip my tooth on a stone, that I don't have in India
At best, PPP tells you something about the differences in cost of labor. But labor isn't everything you buy.
PPP suffers from the same problem that "basket of goods" CPI suffers from in that it doesn't account for differences in quality:
- of course a car costs more today than it did in 1980, it's a far better car
- of course a loaf of bread costs more in California than it does in India - I have certain guarantees about the pesticide levels in the wheat, the accuracy of the labeling, and my ability to seek damages from the legal system in case I chip my tooth on a stone, that I don't have in India
At best, PPP tells you something about the differences in cost of labor. But labor isn't everything you buy.