|Big Mac Index|
International Cost Engineering Council
Direct comparison of costs and true currency values, not arbitrarily controlled exchange rates, from one country to another is a very difficult task unless you are able to price identical items.
One item which is available virtually everywhere and which is rigidly controlled to the same standards of production is the Big Mac hamburger from the McDonalds Corporation's worldwide chain of restaurants.
By comparing the price of a Big Mac in one country with that in another country, it is possible to gain a relative measure of the value (the PPP or Purchasing Power Parity) of the two currencies, at least in terms of hamburgers. The Big Mac PPP is the exchange rate that would equalize the cost of the burger in any country to the cost in the United States, that is, the true relative value of the two currencies insofar as the prices of burgers are concerned.
The Economist newspaper periodically compiles comparative pricing of the Big Mac for many countries, tabulates the relative purchasing power of the currencies, and draws conclusions, some rather humorous, about the countries and their currencies.
The Economist's Big Mac Index is based on the theory of purchasing-power parity (PPP), the idea that exchange rates should move to equalise the prices of a basket of goods and services across different countries.
Various ICEC delegates and member organizations have suggested that ICEC compile such an index as it appears to have great value in comparing costs and prices between countries. However, since The Economist has already done this and makes the information available via the Internet, we are instead referring interested parties to The Economist at www.economist.com/markets/Bigmac/Index.cfm.(Graphic courtesy of The Economist.)