Purchasing power parity implies that any differences in inflation rates will be offset by a change in the exchange rate.

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Purchasing power parity (PPP) is a theory that suggests that in the long run, exchange rates between two countries should equal the ratio of the two countries' price levels (i.e. the relative cost of a basket of goods in each country). If inflation occurs at a higher rate in one country compared to another, the prices of goods will rise faster in the first country, making its exports less competitive and imports more attractive. This will lead to a decrease in demand for the currency of the first country, causing its exchange rate to depreciate. In contrast, the currency of the second country will appreciate due to the increased demand for it. As a result, the relative prices of goods between the two countries will adjust, and purchasing power parity will be restored.

Purchasing Power Parity Implies That Any Differences in Inflation Rates