The Economist: Our Big Mac index shows how burger prices are changing
January 25, 2024 The Big Mac Index, invented by The Economist in 1986, offers a playful yet insightful perspective on the concept of purchasing-power parity (PPP) by comparing the prices of a McDonald’s Big Mac across various countries. This index serves as a tool to gauge whether currencies are valued “correctly” against the dollar, based on the theory that exchange rates should eventually align with the price of an identical basket of goods and services—in this case, a burger—in any two countries. Despite its original intent as a simplified explanation of exchange-rate theory, the Big Mac Index has gained global recognition, influencing economic textbooks and academic studies. To address criticisms and provide a more nuanced analysis, The Economist also calculates a GDP-adjusted version of the index, which considers the relationship between a country’s Big Mac prices and its GDP per person, offering insights into the “fair value” of currencies today relative to their economic productivity.