Economists believe the major factors behind local price increases falls to the mining boom, high exchange rate, low unemployment, major industries being run by a small number of sellers and high labour costs, the Australian Financial Review reports.The high prices reflect that people want to live in Australia, according to John Van Reenen, the director of the centre for economic performance at the London School of Economics.
‘However, as the commodity boom and China’s growth slows, Australia will face a more challenging time ahead,’ Professor Van Reenen said.
Australia’s PLI had indices of 201.0, which sat just behind Switzerland, Norway and Bermuda at 209.6, 206.4 and 201.6 respectively.The lowest prices were in countries like Egypt, Pakistan, Ethiopia, Bangladesh, India and Vietnam with PLIs ranging from 35 to 45.
Professor of economics at Harvard University, Kenneth Rogoff, said richer countries were usually at the top of the scale.’In the case of Australia, the high PPP (purchasing power parities) price level mainly reflects the way high ¬commodity prices bid up economy wide wages and therefore the price of goods in the service sector,’ Professor Rogoff said.
‘If high prices reflect high wages driven by productivity gains in the traded goods sector, then they are not such a problem.’The data was submerged in a report released last week by the World Bank’s International Comparison Program.The Purchasing Power Parities and Real Expenditures of World Economies report drew on data from 2011.
MOST EXPENSIVE COUNTRIES AND THEIR GDP RANKING