Purchasing Power Parity

When we look at the oil price in Malaysia, it is wrong to actually compare the oil price in Malaysia, with that in the US (as did by some parties), and say,'hey, at least the price of oil in Malaysia is still considerately lower than than in US. The oil price in the US, if converted to RM, (and in liters) would be equivalent to RM3.46/L.


However, in reality, a huge consideration has to be put into the equation, and that consideration is the Purchasing Power Parity (PPP). According to Wikipedia, this purchasing power exchange rate equalizes the purchasing power of different currencies in their home countries for a given basket of goods. It is used to compare the standard of living between two countries.

And obviously, the standard of living in the US is much2 higher than here in Malaysia. For example, in the US, the minimun wage (differs with each state) is at least $5/hour. That means, each American is capable of buying a gallon of oil with each hour they work. In Malaysia, that's a different story all together. Here, we don't have a minimum wage allocation. Here, people can actually earn as low as almost nothing an hour! Imagine how many hours these people would have to work in order to afford a liter of oil to power their car.

An easy way to estimate this PPP is by applying the Big Mac Index. This is done by comparing the big mac price for two different countries. For example, a big mac in the US would cost about $2.50. In malaysia, a Big Mac would be about RM5. The ratio would thus be 2. If you multiply this ratio with the price of oil in the US (which is $4/gal), you get RM8/gal. Convert this to liters and you get about RM2.11/L. The price of oil in Malaysia should be, ladies and gentlemen, more or less that amount only.

So wahai rakyat jelata sekalian, don't let them cheat and lie in your face regarding this world oil price thing. We can change this, and let's do just that!