The Big Mac index, created by The Economist in 1986, is a lighthearted guide to determine whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP) and compares the prices of Big Macs in different countries. While the index was not intended to precisely gauge currency misalignment, it has become a global standard and is included in economic textbooks. The GDP-adjusted index addresses the criticism that burger prices should be cheaper in poorer countries due to lower labor costs. However, it is important to note that the index provides a long-term perspective on exchange rates and may not accurately reflect the current fair value of a currency. The Big Mac index is regularly updated, and the methodology behind it is available for further exploration.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Big Mac index measures burger prices | Measuring burger prices | More countries included in the index | Comparison and analysis of currency values |
| GDP-adjusted index considers purchasing power | Adjusting for purchasing power | Improved accuracy in determining currency value | Economic development and labor costs |
| Methodology updates for Big Mac index | Methodology updates | More accurate and reliable index data | Continuous improvement and data accuracy |
| Errors in calculations for British pound and euro | Correction of errors | Accurate and reliable index data | Quality control and data accuracy |