What Is Purchasing Power Parity (PPP) Explained
16 October 2026 - Naira BriefingPurchasing power parity (PPP) is the idea that a currency’s real value is what it can actually buy. It explains why a dollar converted to naira often buys far more in Lagos than in London — and why the market exchange rate and the “real” rate can differ.
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The core idea
- Same basket, different price — goods cost less in naira terms locally.
- Implied rate — PPP suggests a rate based on buying power.
- Market rate differs — because of trade, capital flows and policy.
Why it matters
PPP helps explain the gap between the headline exchange rate and what money really buys — useful for diaspora, travellers and anyone comparing costs. It sits alongside why the rate changes and real vs nominal rates in reading the naira’s real value.
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