Relative purchasing power parity The relative PPP explains the changes in exchanges rates over time rather than the absolute levels of exchange rates. The change in the exchange rate is (approximately)determined by the difference in inflation rates. If Japan has a inflation of 4%lower than the US,the relative PPP predicts that the Yen will appreciate by 4%per annum to the US Dollar.Relative purchasing power parity The relative PPP explains the changes in exchanges rates over time rather than the absolute levels of exchange rates. The change in the exchange rate is (approximately) determined by the difference in inflation rates. If Japan has a inflation of 4% lower than the US, the relative PPP predicts that the Yen will appreciate by 4% per annum to the US Dollar