January 6, 2000 (The Editor’s Desk is updated each business day.)

Where the dollar stretches most, least

In a recent study of prices in 32 nations, the most expensive country was Switzerland and the least expensive was the Slovak Republic.

[Chart data—TXT]

For this analysis, price level indexes were constructed that can be used to interpret whether a country’s average prices are high or low, relative to a base country or country grouping. On a scale where the price level index of the Organisation for Economic Co-operation and Development (OECD) equals 100, Switzerland had a price level index of 151 in 1996 and the Slovak Republic had an index of 36.

In general, price levels were highest in Japan and northern Europe. The United States had a price level index of 91, slightly below that of the OECD as a whole.

The currencies of lower income nations were generally undervalued relative to the American dollar. An American dollar converted at market exchange rates has greater purchasing power in lower income countries, such as the former Communist countries or Turkey or Mexico, than in the United States.

This analysis of "purchasing power parities" was published in the October 1999 issue of Monthly Labor Review. Purchasing power parities are estimates derived from the relative price levels in different countries and reflect the rate at which currencies can be converted to purchase equivalent goods and services. For additional information see "International comparisons based on purchasing power parity," by Michelle A. Vachris and James Thomas, Monthly Labor Review, October 1999. The OECD presently is made up of 29 countries, including the U.S., Canada, Japan, and the countries of the European Union.