Price indexes that compare the prices of goods and services across U.S. states and metropolitan areas for a given year. Regional Price Parities (RPPs) express each area’s price level relative to the national average, helping put regional income and purchasing power on a comparable footing.
The U.S. Bureau of Economic Analysis (BEA) publishes Regional Price Parities by State and Metro Area. Its all-items measure covers consumption goods and services, including housing rents. RPPs describe differences between places, rather than the price of one particular product or a household’s individual spending budget.
Reading the Index
The U.S. average equals 100. An index above 100 means an area’s overall price level is higher than the national average; an index below 100 means it is lower. The distance above or below 100 expresses the percentage difference from the U.S. price level for that year.
Compare areas using the same year and the same measure. An all-items RPP and a housing-rents RPP answer different questions. BEA estimates each annual set independently, so a change in an area’s RPP alone should not be read as its inflation rate.
Comparing Income and Purchasing Power
A current-dollar income figure tells you how much money is received, but regional price differences affect what that income can buy. RPPs provide a way to account for those geographic differences when comparing personal income across states or metropolitan areas.
In its explanation of price adjustment using RPPs, BEA distinguishes two steps. It first adjusts current-dollar income or consumption expenditures for regional price levels using RPPs. It then converts the adjusted amounts to constant dollars using the U.S. personal consumption expenditures price index. This second step accounts for national price changes over time in BEA’s real estimates.
How RPPs Relate to Other Price Measures
- Consumer Price Index (CPI). CPI measures price changes over time. RPPs compare price levels across places within a period. Although BEA uses CPI price observations as an input, an RPP is a different measure, not a regional CPI inflation rate.
- Purchasing Power Parity (PPP). Purchasing power parities compare price levels across countries and can help express Gross Domestic Product (GDP) in comparable purchasing-power terms. RPPs apply the spatial comparison within the United States, without converting between currencies.
- Regional price change over time. BEA combines RPPs with the national personal consumption expenditures price index to produce implicit regional price deflators. Use the appropriate BEA real series or deflator when the question concerns change over time rather than differences between places.
Using RPPs in Regional Decisions
For marketers, RPPs can add purchasing-power context to comparisons of regional audiences. Consider them alongside income and other market research when assessing how affordable an offer may be in different locations. Keep the interpretation tied to consumer price levels rather than treating the index as a direct measure of advertising costs.
Researchers and regional planners can use the same distinction when comparing income, wages, or living costs: show the nominal figures, identify the geography and year, and explain any price adjustment. A higher nominal amount and greater buying power are different questions. RPPs help address the second question by accounting for geographic differences in consumer prices.
For a sound comparison, use BEA’s published measures consistently, distinguish all-items results from category-specific results, and keep cross-region purchasing power separate from inflation over time.