Hamburger Economics: What We Can Learn from the ‘Big Mac’ Index

Kempinski Grand Hôtel des Bains in St. Moritz, Switzerland

By Jonathan Spira on 23 January 2017
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I’ve long been an admirer of The Economist’s Big Mac Index, introduced as a light-hearted means of comparing the purchasing power of different currencies across the globe.

Since its inception in 1986 (and I’m certain that its creators never envisioned it to be a global standard cited in numerous papers and economics textbooks), it has become a useful tool to gauge currency misalignment and to see what the world’s prices for a Big Mac, and hence the cost of food, are at any given point.

The index’ baseline is always the cost of a Big Mac in the United States (currently averaging $5.06). The world’s most expensive Big Mac is found in Switzerland, where it is currently 6.50 Swiss Francs or $6.35 for two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun. The cheapest Big Mac is available in Egypt at 27.49 Egyptian pounds or $1.46, where the Economist points out the currency is undervalued by 71%.

A Big Mac is €3.88 ($4.06) in the Euro Zone, where the currency is undervalued by almost 20% and 49 Norwegian Kroner ($5.67), where the currency is overvalued by 12%.

In Mexico, a Big Mac will set you back 49 pesos or $2.23, commensurate with a currency undervaluation of 56%.

Of course it isn’t just a fancy burger that varies in price across the globe. The cost of almost any good or service is valued at different prices reflecting a complex range of factors regardless of currency – be it the U.S. dollar, Japanese yen, Great British pound, or Euro.

What it doesn’t mean, however, is that a burger costs more in Switzerland than in Egypt because people in Geneva or Zürich can afford to pay more for it.

To understand the Big Mac Index’ significance, one has to look at a country’s gross domestic product per capita, which basically takes into consideration what a country is worth. One can see where purchasing power for a country needs to even out to improve its ability to trade with other countries. It also reveals which countries need greater economic investment and lack decent infrastructure.

Or is it really just a hamburger at the end of the day?

(Photo: Accura Media Group)

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