The purchasing power parity theory states that the equilibrium level of the nominal exchange rate as compared to its level in some base period can be calculated using the ratio of the domestic to the foreign price level compared to the level of that ratio in the same base period. The correspondence of the year-to-year percentage growth of the Mexican peso price of the U.S. dollar with the difference between the Mexican and U.S. inflation rates during the period here studied gives strong support to this hypothesis.