The Big Mac Index and Purchasing Power Parity: Which Big Mac is Actually the Yummiest?

The Economist invented the Big Mac Index in 1986 to better demonstrate Purchasing Power Parity (PPP). But does The Economist actually eat the Big Macs in their study? The Big Mac Index assumes parity in value; but I disagree, because Big Macs around the world are not equal in yumminess.

What is PPP? Investopedia defines it as:

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency’s purchasing power.

In layman’s terms; if a basket of goods and services is worth US$100 in the United States and an identical basket of goods and services is worth only US$ 77 in the Philippines at current exchange rates, then the Philippine Peso (PHP) is undervalued by 23 %.

Unfortunately, many people in the world no longer use baskets, and deciding which good makes it to the basket may be contentious. Since McDonald’s (see MCD:US latest stock quote), the company that serves Big Macs, can be found in most countries, using the burger as a proxy for the “basket of good and services” makes sense. Of course, the Big Mac method is not accurate; but according to The Economist, this makes the PPP theory more “digestible”.

Digestible? Did The Economist staff actually eat the Big Macs? Do The Economist writers actually eat at McDonald’s? In my opinion, some Big Macs are yummier than others.

 

Here is a rundown from Big Macs from around the world, and a depiction of the countries’ under/ over-valuation against the US Dollar:

 

Big Mac from New Haven, Connecticut, United States of America. Average Price: US$ 4.79

Big Mac in New Haven Connecticut USA
Do students in Yale eat this New Haven Big Mac while debating the merits of the Big Mac Index? Image from spaceofjase.com

My friend spaceofjase liked this burger from New Haven. My opinion: I ate an American Big Mac in Chicago. As the city is the location of franchise no.1, Chicago didn’t mess this up for me. The US Dollar is our base currency here by the way.

Verdict: Currency – Fairly Valued (obviously); Big Mac Yumminess – 8/10

 

Big Mac from Seoul South Korea. Average Price: US$ 3.78

Big Mac at Seoul South Korea
Big Mac Oppa Gangnam Style? Not really. Image by spaceofjase.com

“Just ok, nothing special”, according to my friend spaceofjase. It’s undervalued by 21% though according to the Big Mac Index, so I guess it’s better than ok. My opinion: While I was eating the Seoul Big Mac, I was imagining eating bibimbap instead.

 

Big Mac Index South Korea
I don’t agree that the KRW is undervalued. Things are very expensive in Seoul. I hardly ate when I was there. #truth. Image from economist.com

 

Seoul has always been known as a very expensive city to live in. I’m surprised that the Bic Macs there are cheaper.

Verdict: Currency – undervalued by 21%; Big Mac Yumminess – 7/10

 

“Big Mac” aka Chicken Maharaja Mac from Chennai India. Average Price: US$ 1.89

Chicken Maharaja Mac from  Chennai India
Because cows are sacred, McDonald’s India serves Chicken Maharaja Mac instead. Image from spaceofjase.com

“This is not a Big Mac. I don’t like it – and it’s not because its chicken. It would have tasted just as bad if it were made of beef “ according to my friend spaceofjase. My opinion: I haven’t been to India.

 

Big Mac Index India
If the Indian Rupee (INR) is that undervalued, I can think of better things to buy than a Maharaja Mac. Image from economist.com

 

Because of Indian culture, Big Macs had to be reinvented – as chicken – for Indian consumers.

Verdict: Currency – undervalued by 61%; “Big Mac” Yumminess – 1/10

 

Big Mac from Beijing, China. Average Price: US$ 2.77

Big Mac Index India
The Chinese always know how to pick their battles. They didn’t even try with this Big Mac. Image from spaceofjase.com

“Tastes like paper”, according to my friend spaceofjase. “The Chinese invented paper, duh!”, I replied. My opinion: I haven’t visited China. Given that I love Chinese food, I wouldn’t even think of eating at a McDonald’s when I finally go to China.

 

Big Mac Index China
Many believe than the Chinese Yuan (CNY) is purposely undervalued. Since China is the world’s store, is that good? Image from economist.com

 

Critics of China believe that the Yuan is purposely undervalued to make Chinese exports cheaper. Is the taste of the Beijing’s Bic Mac purposely undervalued as well?

Verdict: Currency – undervalued by 42%; Big Mac Yumminess – 4/10

 

Big Mac from Jakarta Indonesia. Average Price: US$ 2.24

Big Mac Jakarta Indonesia
Indonesia is an emerging power in Big Macs. Image from spaceofjase.com

“Juicy, the best Big Mac ever!”, exclaims my friend spaceofjase. Since he loves everything Indonesian (he’s Filipino), I’ll take his opinion with a grain of salt. My opinion: I haven’t been to Indonesia.

 

Bic Mac Index Indonesia
I can call myself a millionaire – in Indonesian Rupiahs! (IDR) Image from economist.com

 

The Indonesian Rupiah (IDR) seems to be getting more undervalued in recent years. I expected the trend to reverse with the fall in oil prices, but that hasn’t happened yet. The good news is that we can still enjoy the great tasting Indonesian Big Mac.

Verdict: Currency – undervalued by 53%; Big Mac Yumminess – 9/10

 

Big Mac from Bangkok, Thailand. Average Price: US$ 3.04

Big Mac Bangkok Thailand
Tongue twister alert: Bic Mac Bangkok. Image from spaceofjase.com

“Nothing special”, according to my friend spaceofjase. In my opinion, there are better things to eat in Thailand than a Big Mac.

 

Big Mac Index thailand
Now I know why tourists flock to Thailand. Image from economist.com

 

The Thailand Baht (THB) is undervalued by around 37%, but its value has been steadily going up in recent years. Nevertheless, tourists still flock to Patpong.

Verdict: Currency – undervalued by 63%; Big Mac Yumminess – 6/10

 

 

Big Mac from the Philippines. Average Price: US$ 3.67

 

 Big Mac Meal from the Philippines
I eat this more frequently than other Big Macs. Big Mac Meal from the Philippines. Image from mcdonalds.com.ph

Though I like the Big Mac in the Philippines, I actually like the McDonald’s Quarter Pounder better. In my opinion, there are better burger options – for the same or lower prices – from other restaurants here in my country.

 

Big Mac Index Philippines
Among the currencies in Southeast Asia, the Philippine Peso (PHP) is the least undervalued. Image from economist.com

 

According to the Big Mac Index, the Philippine Peso (PHP) is less undervalued than the Singapore Dollar (SGD) and all the other currencies of SouthEast Asia. I worry about the Philippines’ competitiveness.

Verdict: Currency – undervalued by 23%; Big Mac Yumminess – 7/10.

 

The Big Mac Index has flaws. First, McDonalds’ positioning varies around the world. Among developed countries, Bic Macs may be cheap food. However, in developing countries (like my country the Philippines), Big Macs are unaffordable for many people.

As a foodie, a big flaw of the Big Mac Index for me is the lack of consistency in the taste of Big Macs around the world. Some say that this is because McDonald’s adjusts to the tastes of the local community.

Whenever I travel and eat a Big Mac, the local cuisines always taste better in my opinion. The local food is also usually cheaper.

Maybe the Big Mac itself is the overvalued one.

 

 

– Finance MD

thefinancemd.com

 

Special thanks to spaceofjase.com and The Economist .

 

 

 

 

 

 

 

 

 

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Finance, M.D.

Finance, M.D. is a practicing physician who dabbles in finance and investment. He has passed all three levels of the Chartered Financial Analyst (CFA) exams, all in his first attempts. thefinancemd.com

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