Monday, October 16, 2006

Big Mac Index

Mucking around the Economist web site this morning, I came across the sidebar pointing to the Big Mac Index. Apparently, it's been 20 years since the Economist came out with the tongue-in-cheek measurement tool.

I'd like to think that I came upon the Big Mac Index independently, back when I was criss-crossing Asia for Digital Equipment and IBM. Ever the pennypincher, I would automatically do currency conversions in my head when faced with a possible purchase. Why, I wondered, does a burger cost so much more in Seoul than in Cebu?

The answer, it turns out, was a factor of economics and cost of living. Luckily, the Philippines still has one of the lower average prices of a Big Mac than other countries. Or should I say, unluckily. For most of my twenties, I subsisted on burgers and that diet has taken its toll on my health. Ah, but that's a Supersize Me story.

For reference, here's the latest Big Mac Index, lifted from the Economist.

8 comments:

  1. In deed food in the phils is much cheaper :). When we arrived here in oz our 1st day was terrible coz we arrived early in the morning with nothing in our tummy except the food served by qantas. So we rushed to grab a bite but unfortunately we were not able to eat right because it's so expensive. And as you said convert... convert... convert... :) hahaha.

    ReplyDelete
  2. The Big Mac index is sort of a tongue-in-cheek way to measure purchasing power parity, based a theory that says all other things being equal, the price of identical items should be the same everywhere.

    Thus, comparing the price of a Big Mac against the actual exchange rate tells us whether a currency is over/under-valued against another. It looks like according to the index, the peso is *way undervalued* against the US dollar.

    Of course, there are probably better ways to measure PPP; but the big mac one makes the whole subject much more interesting. At least there's a use for the Big Mac other than making us fat. :-P

    See also the Tall Latte index.

    ReplyDelete
  3. Thanks, ValQ and Roy. I think there's also the Coca Cola Index. Coke should be more interesting because the price of the raw material is wa-aay less than what you actually pay for it, i.e., you're paying for whatever the company thinks you can pay for.

    ReplyDelete
  4. As I understand it, Economist's Big Mac index is used to measure wether a currency is over- or undervalued as compared to US Dollar.

    One of the ways economists (the profession) do that is through the use Purchasing Power Parity. This is done by defining a common basket of goods across they hope is relevant to different countries, race, and cultures found on this here Third Rock from the Sun. Collected and compiled from many different sources using different criterias which usually results in disagreements and conflicting results.

    Thus Economist's (the magazine) approach is not only tongue-in-cheek but have the qualities of quickness and convenience. Which will continue to elude conventional methods.

    ReplyDelete
  5. I think a BigMac in the Philippines is not of the same size as in other countries. They should call it miniMac instead? It's cheaper but you get less "fat", haha.

    ReplyDelete
  6. Hi, Benz and Roy: well, yes, there's that, too. But to me the most practical aspect is cost of living (or isn't that a less fancy way of saying purchasing power parity?)

    Hi, Jon: so true! Then again, I find that Americans always consume more. Hmmm, health care crisis on the loom?

    Hi, Aris: he he he to you, too.

    ReplyDelete
  7. True enough Jon. In fact with the same price here in OZ you can choose different sizes (it's strange huh!).

    ReplyDelete