Yes, you read that right: The mighty Big Mac can tell us a lot about a country's economy. At least that was the idea The Economist magazine had when they introduced the Big Mac Index in 1986 to convey country-by-country consumer purchasing power.
The Big Mac Index was originally cooked up (yes, pun intended) as a generally good-natured way of comparing the Purchasing-Power Parity (PPP) of different countries. Basically, the theory behind PPP is that, over time, the price of a given “basket” of similar goods in any two countries will tend to equalize - in this case that "basket" is a burger- and the more equalized the basket price is, the more parity between countries.
The latest data from the Big Mac Index provides ample proof of that. In the middle of the spectrum, we have the home of the Big Mac, the USA, where one of these iconic burgers costs USD $5.30.
On the expensive side of things, a Big Mac will run you $6.82 in Switzerland. On the other side of the spectrum, a Big Mac in Ukraine only costs $1.67. I can hear The Hamburglar boarding the next plane to Kiev as we speak. While the Big Mac can't provide a magical explanation of how the entire world economy works, it does provide a good foundation to begin investigating what's happening in a country's economy, as it has become a regular purchased commodity around the globe. Let's look at two examples.
Just why is a Big Mac so expensive in Switzerland? The answer just may lie in one of the things Switzerland is best known for. If you guessed chocolate, you'd be wrong. Nice try though. Switzerland is an expensive place to live. Due to their relatively higher standard of living, which is paid for through higher wages and taxes, many commodities and services are priced much higher, and Big Macs are no exception. Before you start feeling sorry for the Swiss, you should consider that,, because of their high standard of living, they're some of the happiest and healthiest people in the world. They also enjoy an employment rate of over 80%, and a life expectancy of 83 years, both of which are well above global averages, and even averages for developed countries.
Ukraine is home of the world's cheapest Big Mac, with each sandwich costing only $1.67 US dollars. By the logic of the Big Mac index, this would mean that the currency used in Ukraine, the Ukrainian hryvnia, is quite undervalued.
Big Macs: What Does the Future Have in Store?
As unstable as global economics have been in recent years, it's really a toss-up as to what could happen next. If the US economy spirals into another tailspin, the prices of American Big Macs may experience wild, Venezuelan-like swings. On the other hand, if the global economy becomes more stable, we may come to see a world where the Big Mac is as equally affordable as it is uniformly created all around the world. I'd definitely have some fries with that.