Purchasing power parity
The idea that an exchange rate should equalise the cost of the same basket of goods across countries.
How to read the number
It gives a long-run anchor: the currency of a country with faster inflation weakens over time against the currency of one with slower inflation.
When the metric lies
The anchor works over long horizons and says nothing about timing. A rate can sit far from parity for years, and watching that gap is not at all the same as profiting from it.
Also known as: purchasing power exchange rate