A ride on a city bus costs more than $7.00 in Oslo but only 7¢ in Mumbai.
The same iPad 2 that sells for over $1,000 in Buenos Aires can be picked up for half that price in Bangkok.
But when we really want to understand purchasing power, we look at global Big Mac prices.
A Big Mac is a Big Mac wherever you go.
The McDonald’s Big Mac is an ideal indicator. With a few accommodations to local tastes, it’s the same sesame seed bun, same special sauce, same double beef patties, made to identical specifications by all of the company’s franchisees around the globe. Unlike transit or tablet computers, the Big Mac includes inputs from a wide range of local area sectors from agriculture to advertising, and hires a mix of white and blue collar workers.
A theory of burger-buying parity
The Big Mac Index has been published annually in The Economist since 1986. The index demonstrates the purchasing power of consumers around the globe by converting the world’s currencies to a hamburger standard. Purchasing parity would mean that every consumer world-wide is paying the same equivalent price (in their local currency) for a Big Mac. If you’re paying more than the fair-value burger benchmark, you live in a country with an over-valued currency; conversely a cheap Big Mac signals an under-valued currency.
Travel across the European continent and the power of currency valuations comes to life. A mere 17 Ukrainian hryvnias (the equivalent of $2.11) gets you a burger in Kiev; hungry in Hungary and you’ll spend 645 forints ($2.63), while in Copenhagen the same Big Mac costs more than double that amount ($5.37) in Danish krones.
The Big Mac Index locates most of the world’s under-valued currencies in Asian countries—no big surprise to anyone who shops at big box discount retailers like Wal-Mart and Costco where more than 90% of the merchandise can come from China. Taiwan, Indonesia, China, Malaysia, and Hong Kong are all under-valued by more than 40%. India, home to the index’s cheapest burger, the $1.62 Maharaja Mac, also has the cheapest currency, the 60% under-valued rupee. Switzerland and Norway top the list with the priciest Big Macs, quadruple the cost of an Indian burger ($6.81 and $6.79), and the most over-valued currencies (62% ).
You can see the full data set here.