Herein Is The Manner In Which A Fast Food Hamburger Evolved Into An Economic Indicator

The Big Mac Index employs the modest burger to elucidate worldwide currency fluctuations and concealed price dynamics. It is economic theory accompanied by astute intuition.

Credit: McDonald's/Getty images

Grocery expenses are increasing. Restaurant markups appear to be a direct personal attack. Fast food, formerly the preferred option for an inexpensive, rapid meal, has diminished in value, with many Americans now perceiving it as a luxury.

In an era where a simple takeout burger can cost $10 or more, it is pertinent to inquire: What is the current value of a dollar? The Big Mac Index serves as an ingenious, albeit unconventional, method for assessing currency worth by comparing the price of McDonald's iconic burger globally.

Originating from a satirical concept by The Economist in 1986, the Big Mac Index, updated biannually, has evolved into a frequently cited instrument for analyzing purchasing power and currency discrepancies. It converts a commonplace object into an economic perspective, providing a means to investigate why your finances appear to stretch further — or not — based on your location.

What is the rationale behind choosing a Big Mac?

The Economist introduced the Big Mac Index to swiftly assess a nation's currency by monitoring the price of the McDonald's hamburger globally. Usha Haley, Barton Distinguished Chair in International Business at Wichita State University, elucidated to Food & Wine that it is fundamentally grounded on the Purchasing Power Parity hypothesis.

Haley stated that a Big Mac, which is relatively uniform globally, ought to have a consistent price worldwide if exchange rates are equilibrated. "The Big Mac subsequently serves as a crude index of currencies, representing an estimation of purchasing power with local currency in various nations, encompassing a variety of commodities such as beef, wheat, onions, tomatoes, and dairy." The price of a Big Mac should indicate whether a currency is overvalued or undervalued.

Taylor Kovar, a licensed financial advisor and creator of 11 Financial, noted that its popularity has surged over the years due to its accessibility and comprehensibility for all users.

“Rather than engaging with complex charts and calculations, The Economist posed a straightforward question: what is the price of a Big Mac in various nations," he stated. "It is comprehensible and somewhat enjoyable to discuss, which is uncommon in economics."

What specific insights can the Big Mac Index provide?

According to the Big Mac Index, a Big Mac in the U.S. costs $5.79 as of January 2025. This suggests that we should be able to exchange that sum of money for a different currency — for instance, the Swiss franc — and still acquire the same Big Mac, provided that the two countries maintain purchasing power parity. In this year's Big Mac Index, a burger in Switzerland is priced at SFr 7.20, about comparable to $8.74. The index suggests that the franc may be overvalued by up to 38%.

It is essential to recognize that comprehending a currency entails significantly more complexity than merely the price of a meal.

“It is an astute tool for identifying currency misalignments; nevertheless, it fails to consider local labor prices, supply chains, or cultural pricing peculiarities (try purchasing a Big Mac in Switzerland without expressing shock)," stated Michael Ashley Schulman, the chief investment officer at Running Point Capital Advisors. "Nonetheless, it is cherished by economists, policymakers, and journalists for its ability to distill intricate global economic concepts into concise and comprehensible formats."

Other handy quick-service indexes

The Big Mac is not the exclusive method by which economists can swiftly convey economic concepts. Schulman said, "Additional appealing alternatives comprise the 'iPhone Index,' which assesses purchasing power via Apple's omnipresent device, and the 'Starbucks Tall Latte Index,' for individuals who favor economic comparisons adorned with foam art." Utilizing burgers, phones, or coffee mugs, these indices illustrate that occasionally the most effective method to comprehend a complex world is through our appetites.

Ultimately, the primary advantage of the Big Mac Index is its ability to illustrate that economics can be engaging and accessible. Kovar stated, "It is a crude yet immediate assessment of a currency's potential undervaluation or overvaluation." “Consider it more as a catalyst for dialogue rather than an oracle.”