In 2017, the comparison platform Versus did a version called The Chai Latte Global Index, comparing Starbucks Chai Latte prices worldwide, by first converting the local prices into USD.
#COST OF A BIG MAC MAC#
Gold-Mac-Index: The value of the purchasing power for 1 g of gold (: calculation of the gold price average of the corresponding year), how many burgers one got for 1 g gold.Ī Swiss bank has expanded the idea of the Big Mac index to include the amount of time that an average local worker in a given country must work to earn enough to buy a Big Mac. introduced the Billy index where they convert local prices of IKEA's Billy bookshelf into US dollars and compare the prices. However, this theory can be criticised for ignoring shipping costs, which will vary depending on how far the product is delivered from its "single place" of manufacture in China. In 2007, an Australian bank tried a variation the Big Mac index, being an " iPod index": since the iPod is manufactured at a single place, the value of iPods should be more consistent globally. For example, in January 2004, it showed a Tall Latte index with the Big Mac replaced by a cup of Starbucks coffee. The Economist sometimes produces variants on the theme. As of April 2009, the Big Mac was trading in Germany at €2.99, which translates into US$3.96, which would imply that the euro was trading above the PPP, with the difference being 10.9%. The Eurozone is mixed, as prices differ widely in the EU area.
This value is then compared with the actual exchange rate if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.įor example, using figures in July 2008:
The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). For these reasons, the index enables a comparison between many countries' currencies. The Big Mac was chosen because it is available to a common specification in many countries around the world as local McDonald's franchisees at least in theory have significant responsibility for negotiating input prices. In the Big Mac Index, the basket in question is a single Big Mac burger as sold by the McDonald's fast food restaurant chain. One suggested method of predicting exchange rate movements is that, according to the law of one price, the rate between two currencies should naturally adjust so that a sample basket of goods and services should cost the same in both currencies. The index also gave rise to the word burgernomics. The Big Mac index was introduced in The Economist in September 1986 by Pam Woodall as a semi-humorous illustration of PPP and has been published by that paper annually since then.
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