The Economist's Big Mac Index

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How Far from Fair Value is Your Currency?

The Economist's Big Mac Index (July 28th, 2011 Big Mac prices) valued at today's exchange rates

Country	Big Mac Price		Implied PPP rate +	Today's Exchange Rate 1 USD =	Over(+) / Under(-) Valuation against the USD, % ++
	in Local Currency	in US dollars
United States	$ 4.07	4.0700	---	1.0000	---
Argentina	Peso 20.0	4.7866	4.92	4.1783	17.7512
Australia	A$ 4.56	4.7347	1.12	0.9631	16.2911
Brazil	Real 9.50	5.9242	2.34	1.6036	45.9217
Britain	£ 2.39	3.9452	0.59	0.6058	-2.6081
Canada	C$ 4.73	4.7802	1.16	0.9895	17.2309
Chile	Peso 1850	3.9429	455	469.200	-3.0264
China	Yuan 14.7	2.3002	3.60	6.3907	-43.6681
Colombia	Peso 8400	4.6828	2066	1793.81	15.1738
Czech Republic	Koruna 69.3	4.0578	17.1	17.0784	0.1265
Denmark	DK 28.5	5.4878	7.01	5.1933	34.9816
Egypt	Pound 14.1	2.3554	3.47	5.9862	-42.0333
Euro area	€ 3.44	4.9347	1.18	0.6971	69.2727
Hong Kong	HK$ 15.1	1.9362	3.71	7.7986	-52.4274
Hungary	Forint 760	3.9872	187	190.608	-1.8929
India	Rupee 84.0	1.8225	20.7	46.0908	-55.0887
Indonesia	Rupiah 22534	2.6275	5543	8576.33	-35.3686
Israel	Shekel 15.9	4.4430	3.91	3.5787	9.2576
Japan	¥ 320	4.1828	78.7	76.5045	2.8698
Malaysia	Ringgit 7.20	2.4112	1.77	2.9861	-40.7254
Mexico	Peso 32.0	2.6023	7.87	12.2967	-35.9991
New Zealand	NZ$ 5.10	4.1913	1.25	1.2168	2.7285
Norway	Kroner 45.0	8.2169	11.1	5.4765	102.6842
Pakistan	Rupee 205	2.3512	50.5	87.1892	-42.0800
Peru	New Sol 10.0	3.6208	2.46	2.7618	-10.9277
Philippines	Peso 118	2.7658	29.0	42.6638	-32.0267
Poland	Zloty 8.63	2.9550	2.12	2.9205	-27.4097
Russia	Rouble 75.0	2.5722	18.5	29.1583	-36.5532
Saudi Arabia	Riyal 10.0	2.6663	2.46	3.7505	-34.4087
Singapore	S\$ 4.41	3.6380	1.08	1.2122	-10.9058
South Africa	Rand 19.45	2.6963	4.78	7.2137	-33.7372
South Korea	Won 3700	3.4107	910	1084.83	-16.1159
Sweden	SKr 48.4	7.5272	11.9	6.4300	85.0700
Switzerland	SFr 6.5	8.2216	1.60	0.7906	102.3779
Taiwan	NT$ 75.0	2.5397	18.5	29.5307	-37.3533
Thailand	Baht 70.0	2.3388	17.2	29.9301	-42.5328
Turkey	Lire 6.5	3.6325	1.60	1.7894	-10.5846

+ The Purchasing Power Parity (PPP) rate is the local Big Mac price divided by its price in the United States. Prices and their corresponding implied PPP rates are the latest figures available from The Economist.

_{++ The Over/Under valuation against the dollar is calculated as follows using OANDA's latest rates: 100 x (PPP - Exchange Rate) / Exchange Rate}

What is the Big Mac Index?

The Economist uses the price of the ubiquitous McDonald's meal to calculate the "Big Mac Index", a guide showing how far from fair value different world currencies are. The Big Mac theory (a.k.a. purchasing-power parity, or PPP) says that exchange rates should even out the prices of Big Macs sold across the world.

The implied PPP shown in the table is the exchange rate that would make a Big Mac cost the same abroad as it does in the USA. When you compare actual exchange rates with the implied PPP rate, you will see that most currencies are trading way above or below the US dollar, meaning that they are over- or undervalued. Keep in mind that PPP is a long-term indicator, pointing to where currencies ought to go in the future. (It's also best to use it only to measure currencies between countries that are at a similar stage of development.)

How to read this table

If a Big Mac costs €3.38 in countries that use the euro and $3.73 in the US, then the implied PPP rate is 3.38/3.73 = 0.91. If the actual exchange rate for the euro is lower that the implied PPP rate, the Big Mac theory suggests that the value of the euro might go up until it reaches the implied PPP rate. If the actual exchange rate is higher, then you might expect the euro to go down until it hits the implied PPP rate. The percentage of under- and over-valuation from the current exchange rate is shown in the table.

OANDA

Colaboração: Hilda Torres