Hamburger Economics 2018: Learning from the ‘Big Mac’ Index

Saint Basil's Cathedral in Red Square in Moscow

By Jonathan Spira on 3 September 2018
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Eighteen months ago, we took a look at a unique economic tool to gauge currency misalignment: the Big Mac Index, created by The Economist in 1986.

Since its inception – and it was first intended by its creators to be tongue-in-cheek and not necessarily a serious tool – it has become an invaluable way of understanding the relationship between the world’s currencies as they increase and decrease in relative value. It’s also interesting to see, from time to time, what the price is for a Big Mac – and by extension what the cost of food is – across the globe.

The baseline is always the cost of a standard Big Mac in the United States that is currently averaging around $5.51. The world’s most expensive Big Mac continues to be sold in Switzerland, where it costs 5.91 Swiss franc or $6.10 for two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun, thanks to an overvaluation of the Swiss franc by 18.8%. The cheapest Big Mac is available in Egypt at 17.89 Egyptian pounds or $1.76, where the currency is undervalued by 68% according to the Index. In the Euro area, the common currency is undervalued by 14.1%, which makes the $5.51 Big Mac cost €4.05 or $4.71.

In addition to Egypt, the most misaligned currencies according to the Index are, in reverse order, those of Ukraine, Russia, Malaysia, Indonesia, Taiwan, Turkey, Romania, Azerbaijan, and South Africa. The least misaligned currencies (within 10% of the U.S. dollar) are the Swedish Krona (+5.8%), the Norwegian Krone (-5.2%), and the Canadian dollar (-8%).

In Russia, where the opening of the first McDonald’s in 1990 was welcomed with open arms thanks to the strong appeal of the American brand at the end of the Cold War, the company has changed gears as U.S.-Russian relations became more frosty. Now the company plays down its American ties and has changed the logo to Cyrillic script. A Big Mac there costs 142 Russian rubles or $2.09 thanks to the 62% undervaluation of the ruble revealed by the Index.

As I noted in my earlier story, 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. The Index makes it easy to 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.

The Index also highlights where a country’s purchasing power needs to even out in order to improve its ability to trade with other countries. And finally, it’s an excellent indicator of which countries need greater economic investment and may lack decent infrastructure.

Or then again, maybe it’s just the price of a burger.

(Photo: Accura Media Group)

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