The massive mac index was invented by The Economist in 1986 as a lighthearted information as to whether currencies are at their “right” stage. It’s based mostly on the idea of purchasing-power parity (PPP), the notion that in the long term change charges ought to transfer in direction of the speed that may equalise the costs of an similar basket of products and companies (on this case, a burger) in any two international locations.
Burgernomics was by no means supposed as a exact gauge of forex misalignment, merely a software to make exchange-rate idea extra digestible. But the Massive Mac index has turn out to be a world normal, included in a number of financial textbooks and the topic of dozens of educational research. For individuals who take their quick meals extra significantly, we additionally calculate a gourmand model of the index.
The GDP-adjusted index addresses the criticism that you’d count on common burger costs to be cheaper in poor international locations than in wealthy ones as a result of labour prices are decrease. PPP alerts the place change charges ought to be heading in the long term, as a rustic like China will get richer, nevertheless it says little about in the present day’s equilibrium price. The connection between costs and GDP per individual could also be a greater information to the present truthful worth of a forex.
In July 2022 we up to date the Massive Mac index to make use of a McDonalds-provided worth for the US. We additionally modified our methodology for the way we calculate the GDP-adjusted index, the complete historical past of which can now be adjusted every time the IMF’s historic GDP collection are up to date. The beforehand revealed variations of each indices can be found in our archive.
Learn extra concerning the Massive Mac index in “What Donald Trump can study from the Massive Mac index”. You may as well obtain the info or learn the methodology behind the Massive Mac index right here.
Observe: The GDP-adjusted index was up to date in January 2021 to incorporate extra international locations.
Correction (January twenty sixth 2023): An earlier model of the index had the unsuitable Massive Mac worth for China in January 2024. Sorry.
