10/17/2020 Burgernomics - The Big Mac index | The Economist

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Burgernomics

The Big Mac index

Our interactive currency comparison tool

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10/17/2020 Burgernomics - The Big Mac index | The Economist

The Big Mac index

Adjust the index to account
Choose a base currency Show index at for GDP per person

US dollar Jul 2020 Raw index GDP-adjusted

The British pound is 25% undervalued

against the US dollar
July 2020

Undervalued Overvalued

British pound

-80 -60 -40 -20 20%

US dollar

A Big Mac costs £3.39 in Britain and US$5.71 in the United States. The implied
exchange rate is 0.59. The difference between this and the actual exchange rate, 0.79,
suggests the British pound is 25.1% undervalued

2000-2020

100%

50

Britain -50

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Under/over

T he big mac index was invented by The Economist in 1986 as a lighthearted

guide to whether currencies are at their “correct” level. It is based on the
theory of purchasing-power parity (PPP), the notion that in the long run
exchange rates should move towards the rate that would equalise the prices of
an identical basket of goods and services (in this case a burger) in any two
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an identical basket of goods and services (in this case, a burger) in any two
countries.

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Burgernomics was never intended as a precise gauge of currency misalignment,

merely a tool to make exchange-rate theory more digestible. Yet the Big Mac
index has become a global standard, included in several economic textbooks
and the subject of dozens of academic studies. For those who take their fast food
more seriously, we also calculate a gourmet version of the index for 55 countries
plus the euro area.

How it works Raw index /GDP-adjusted

Purchasing-power parity implies that exchange rates are
determined by the value of goods that currencies can buy

Differences in local prices – in our case, for Big Macs – can

The GDP-adjusted index addresses the criticism that you would expect average
burger prices to be cheaper in poor countries than in rich ones because labour
costs are lower. PPP signals where exchange rates should be heading in the long
run, as a country like China gets richer, but it says little about today's
equilibrium rate. The relationship between prices and GDP per person may be a
better guide to the current fair value of a currency.

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Read more about the Big Mac index in “How big is China’s economy? Let the Big
Mac decide”. You can also download the data or read the methodology behind
the Big Mac index here.

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