Economists have been debating about prices for the past two years, as inflation rates have surpassed central bank targets in America and other countries. Analysts have looked into various factors that contribute to the cost of living, such as the prices of goods, services, energy, and rents. One such indicator of inflationary pressures is the price of a Big Mac.
As the iconic burger from McDonald’s is made of rent, electricity, labor, as well as beef, bread, and cheese, its price reflects the overall inflationary trend. Moreover, because the burger is relatively uniform globally, its price can also show how inflation has affected the cost of living in different countries.
The median price of a Big Mac in America has gone up by 6% to an average of $5.36 in the past two years, while the dollar has increased by 9% against most major economies in the same time period, despite inflation also affecting these countries.
This trend threatens to make American prices inconsistent with prices in other countries. In contrast, the theory of purchasing-power parity has held in some cases, such as in Argentina, where both the currency and prices have declined.
Economist have been using the Big Mac Index since 1986 to compare the cost of the same burger across different countries and determine the “fair value” of a currency. However, in the current era of rising inflation, the Big Mac Index reveals that burger prices are becoming increasingly divergent.