Where to Spend the Most on a Big Mac

The price of a Big Mac gives us some pretty good clues about the purchasing power of different currencies. Traveling from the U.S. to Europe to Asia and beyond, you can compare below how much the same Big Mac costs.

Or, we can look at the Big Mac Index on the map.

From: The Economist

Purchasing Power Parity

Theoretically, the price of an identical good should be the same everywhere in the world after we adjust for exchange rates. If that were true, then your purchasing power would be the same in every country. But it is not.

And that takes us to purchasing power parity (PPP).

To explain purchasing power parity, we can look at the Economist’s 2013 data when a Big Mac cost $4.20 in the U.S. and 15.4 yuan in China. If, though, you were to convert $4.20, you get 26.54 yuan. But a Big Mac costs 15.4 yuan. With 26.54 you can get 1.72 Big Macs. So the yuan was undervalued. And, it still is.

What might affect the purchasing power of a currency?

It just might be efficiency. Better at making certain items, a country can charge less. Others try to make their exports more attractive by creating an undervalued currency. We can also add the currency impact of domestic instability or a sinking commodity price.

Our Bottom Line: Foreign Exchange

Whether looking at the Swiss Franc removing its peg to the euro, to Norway getting less for its oil, or to how the Ukraine crisis is crushing its currency, behind every Big Mac price change, there is a story.