The Big Mac index
The Big Mac index is a measure of purchasing power parity (PPP) that compares the price of a Big Mac hamburger in different countries. The Big Mac index was created by The Economist magazine in 1986 as a lighthearted way to illustrate the concept of PPP and to provide a simple way to compare the relative value of different currencies.
The idea behind the Big Mac index is that a Big Mac is a standardized product that is sold in many countries around the world. By comparing the price of a Big Mac in different countries, the index can give an indication of whether a currency is overvalued or undervalued relative to the US dollar.
The index is calculated by taking the price of a Big Mac in a particular country and converting it into US dollars using the current exchange rate. The resulting price is then compared to the price of a Big Mac in the United States. If the price of a Big Mac is higher in a particular country than in the United States, then the currency of that country is considered overvalued. If the price is lower, then the currency is considered undervalued.
While the Big Mac index is not a perfect measure of PPP and should be taken with a grain of salt, it can provide a useful way to understand relative price levels and exchange rates between different countries.
The highest country and lowest country
The Big Mac Index is a dynamic and frequently updated measure, so the highest and lowest countries on the index can change over time. However, as of January 2023, the country with the highest Big Mac Index is Switzerland, while the country with the lowest Big Mac Index is Ukraine.
According to the latest Big Mac Index published by The Economist, as of January 2023, the price of a Big Mac in Switzerland was 6.91 Swiss francs, which is equivalent to around $7.13 USD. This compares to a price of $5.63 USD for a Big Mac in the United States. Based on these prices, the Big Mac Index suggests that the Swiss franc is overvalued relative to the US dollar by about 27.0%.
In contrast, the price of a Big Mac in Ukraine was 58 hryvnia, which is equivalent to around $2.08 USD. This compares to a price of $5.63 USD for a Big Mac in the United States. Based on these prices, the Big Mac Index suggests that the Ukrainian hryvnia is undervalued relative to the US dollar by about 63.1%.
It's important to note that the Big Mac Index is not a perfect measure of currency valuation, and other factors beyond exchange rates can affect the price of goods like the Big Mac in different countries.