Invest
The buying power of an Aussie Big Mac in 2020
As well as its status as a McDonald’s institution, the price of a Big Mac can give us a lot more insight into the world’s currencies than we give it credit for.
The buying power of an Aussie Big Mac in 2020
As well as its status as a McDonald’s institution, the price of a Big Mac can give us a lot more insight into the world’s currencies than we give it credit for.
The “lighthearted” index from The Economist determines what the correct buying power for currency should be based off the price of a McDonald’s Big Mac in each of the 120 countries in which it can be purchased.
Based on the theory of purchasing power parity, or PPP, the index works on the notion that in the long run, exchange rates should move towards a rate that would see the prices of identical goods and services equalise across any two countries.
With the price of a Big Mac siting at $6.45 in Australia, The Economist is able to compare this with every other country’s pricing for the same two-patty, lettuce, special sauce and bun combo.
According to the most recent Burgernomics research, the Australian dollar is overvalued in the UK, Japan and Europe, and so it would reasonably follow on that your travel dollars would go further in those countries.
In Britain, the Big Mac costs £3.39 – implying an exchange rate of 1.90. This is only just above the actual exchange rate of 1.89, suggesting the Australian dollar is barely overvalued – at 0.9 per cent.
It’s a similar story for wider Europe, where a Big Mac can be consumed for €4.12, implying an exchange rate of 1.57. This is close to the actual exchange rate of 1.61, and shows the Aussie dollar is 2.9 per cent undervalued in the economic region.
Across in Japan, the same burger will set you back ¥390.
With an implied exchange rate for ¥100 being 1.65, this is a fair way off the actual exchange rate of 1.32 and overvalues the Australian dollar by 25.6 per cent.
In contrast, the Australian dollar is 21.5 per cent undervalued compared to the United States, where the iconic burger costs US$5.67.
The implied exchange rate based on burger prices is 1.14 – which is far lower than the actual exchange rate of 1.45.
The analysis also revealed the Australian dollar won’t stretch so far in China, where a Big Mac costs 21.50 yuan.
Implying an exchange rate of 0.30, it stands in stark contrast with the actual exchange rate of 0.21 – and points to the potential overvaluation of the Australian dollar by 42.5 per cent.
How does the analysis work?
- Purchasing power parity (PPP) implies exchange rates are determined by the value of goods that each currency can buy.
- Differences in local prices of the Big Mac can suggest what an appropriate exchange rate should be.
- Burgernomics then estimates how much a currency is undervalued or overvalued relative to another. This is done by comparing the exchange rate as calculated through the burger, and how each country’s currency is actually faring in the real world.
About the author
About the author
Spending
How much are you wasting on unused subscriptions?
Australians are continuing to pay for subscriptions they are not using, costing households up to $2,000 a year, new banking figures have revealed. ...Read more
Spending
Viagogo under the microscope for ‘ripping off’ consumers
Viagogo is under investigation by Fair Trading after ticket scalpers have been accused of raking in excessive profits through the ticketing site. ...Read more
Spending
Consumer spending defies lockdown
Statewide lockdowns have not hampered consumer spending, with the latest government data showing Aussies are continuing to spend more on their credit cards. ...Read more
Spending
How a cartel is dictating how much you pay at the pump
Talks among members of the OPEC cartel and allied oil producing countries have broken down, which is leading to skyrocketing oil prices, meaning everyone pays more for petrol, a government body has re...Read more
Spending
Have you noticed the price of your mobile plan increasing?
The consumer watchdog has revealed that the three main telecommunication providers have recently raised prices, meaning millions of Australians are now paying more for mobile services. ...Read more
Spending
Victoria’s lockdowns dampen retail spending
The latest COVID-19 outbreak in Victoria has dented national retail figures, as the economy continues to recover from the COVID-19 pandemic. ...Read more
Spending
It should be easier to fix your phone, Productivity Commission finds
The Productivity Commission has found that it should be easier for Australians to get their smartphone repaired and has recommended changes that include ‘super complaints’ to be reported to watchd...Read more
Spending
You can win free flights for a year, but there’s a major catch
In a bid to keep Australia’s domestic aviation afloat, Qantas is offering free flights for a year for 10 families of four who get the COVID-19 jab, even though the failed vaccine rollout means only ...Read more
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Spending
How much are you wasting on unused subscriptions?
Australians are continuing to pay for subscriptions they are not using, costing households up to $2,000 a year, new banking figures have revealed. ...Read more
Spending
Viagogo under the microscope for ‘ripping off’ consumers
Viagogo is under investigation by Fair Trading after ticket scalpers have been accused of raking in excessive profits through the ticketing site. ...Read more
Spending
Consumer spending defies lockdown
Statewide lockdowns have not hampered consumer spending, with the latest government data showing Aussies are continuing to spend more on their credit cards. ...Read more
Spending
How a cartel is dictating how much you pay at the pump
Talks among members of the OPEC cartel and allied oil producing countries have broken down, which is leading to skyrocketing oil prices, meaning everyone pays more for petrol, a government body has re...Read more
Spending
Have you noticed the price of your mobile plan increasing?
The consumer watchdog has revealed that the three main telecommunication providers have recently raised prices, meaning millions of Australians are now paying more for mobile services. ...Read more
Spending
Victoria’s lockdowns dampen retail spending
The latest COVID-19 outbreak in Victoria has dented national retail figures, as the economy continues to recover from the COVID-19 pandemic. ...Read more
Spending
It should be easier to fix your phone, Productivity Commission finds
The Productivity Commission has found that it should be easier for Australians to get their smartphone repaired and has recommended changes that include ‘super complaints’ to be reported to watchd...Read more
Spending
You can win free flights for a year, but there’s a major catch
In a bid to keep Australia’s domestic aviation afloat, Qantas is offering free flights for a year for 10 families of four who get the COVID-19 jab, even though the failed vaccine rollout means only ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
