A Lot For a Latte?

We can get the most latte for our loot in Cairo. At the equivalent of $1.53, a Cairo tall latte is close to one-half the $3.45 price of one in the U.S. On the other hand, a tall latte in Zurich would require $5.76 in U.S. dollars.

From The Wall Street Journal’s list of 29 cities, you can see that a Starbucks tall latte is relatively inexpensive in Turkey and South Africa. Surprisingly, it costs more in China than the U.S.:

The Yuan and the Dollar

Since China’s tall latte costs $4.22 in Beijing and the U.S. tall latte is $3.45 in New York, the yuan might be overvalued. Yes, we should emphasize here that we really cannot base our opinion of a currency on just one coffee. But, it might be accurate.

The following graph indicates that years of yuan undervaluation have ended:

And meanwhile, the dollar is less overvalued:

Our Bottom Line: Currency Values

The latte index lets us compare the purchasing power of a currency. It provides a starting point for deciding which currencies are cheap and which are expensive. Or, as an economist would say, which are undervalued and which are overvalued.

Currency valuation matters when we trade. If China’s yuan is undervalued, then its exports will cost less. People everywhere will want to buy more of their furniture and t-shirts and cell phone components. Correspondingly, an overvalued U.S. dollar elevates the price of our exports. Because exports are included in our GDP, selling more of them can boost economic growth. So we might want to applaud a cheaper dollar.

And a Starbucks tall latte price that, at $3.45, is not too high nor too low but perhaps just right.

My sources and more: For more about the Starbucks tall latte index (and the source of my graphs), I recommend this WSJ article. Meanwhile, if you want to compare the price of a coffee to what people can actually afford, do look at ValuePenguin.