I love me some Big Mac indices. The concept is intriguing. I'd like to see the potato index or something non brand related. The trouble is choosing the right veggie/product
Is there another food item that is so ubiquitous? Some cultures don't eat rice. Some cultures don't eat potatoes. Some cultures don't eat corn. Some don't eat tofu. And for the many food items that are somewhat easy to find worldwide, demand will be different.
And is there another measuring stick that would give us the simultaneous jab against globalization and corporate imperialism?
KFC is definitely more popular than McDonalds in Asia. Chicken and pork are much more popular than beef. I've always assumed it had to do with the stupendously inefficient nature of beef in terms of cost & land.
Not true. My dad's side of the family lives in Libya and one of my aunts requires insulin- the price went up at least 5x during the worst of it and it's still currently 3x of what it used to be.
I mean differential shocks -- you want the index/item to track the general price differences between the countries, and not be thrown off by a cow disease that drives up milk -- or a good just being cheaper because of favorable local conditions.
If insulin became expensive during the war, that was only because things became more expensive in general, right? That's what the index should capture: "you need 3x in dollar terms to buy the same stuff in Libya."
Again it will likley be imported from countries with lower labor costs.
You need something perishable, and of low enough cost that importing is unlikley.
Bread would be a good option but has the issue that it's not as common in Japan as France, it also varies wildley where as a big mac is generally consistent.
A Big Mac, as a branded item, varies by cultural context: in the US, it's super cheap fast food; in Europe it might be late-night after-party food; in Asia, an extravagant treat.
The biggest issue with alcoholic beverages are the taxes that go along with them. Some countries have very high alcohol taxes while others have almost none. That would seriously throw off the PPP calculation.
Any practical reason you'd want a "non brand related" index? The way I understand it the Big Mac index is pretty good because it casts a wide net from the cost of producing (or importing) food to the price of labour, and everything in between. I doubt you'd get that with a potato.
While it's true that the price of labor, production, transportation, etc, would affect the cost of the Big Mac, it's still ultimately up to McDonalds to set the price, deciding what sort of margin they want from the product, maybe taking into account stuff like brand recognition.
So, using something like the potato would eliminate that sort of "bias" to the product, as no one party controls the potato, and thus couldn't artificially set the price higher at a whim. If the price of the potato rose, it would be because the whole market reacted to some changes to transportation or production costs, not because management has decided that they want to build their brand as being expensive and exclusive (which we know happens with a lot of brand products).
What a difference a year makes. Brazil had the most overvalued currency in the world a year ago[1] according to the Big Mac Index, but today it's undervalued by 10.6%.
It strikes me that currency exchange rate is a very inconspicuous thing with a big effect. Unlike inflation, interest rates, or how much rent you pay--which everyone is aware of--most people don't sense changes in exchange rate, the effect of which is just as profound.
The exchange rate is news, however I haven't really noticed any effect on my life (maybe when I travel, however the places I visit in the US are still cheaper than where I live).
McDonald's in Brazil targets a customer base very different from MacDonald's in other countries. In the US, McDonald's is cheap fast food; in Brazil its stores appeared first in posher shopping malls. The local alternative (xis) is a lot cheaper, so pricing probably has a lot to do with market segmentation, which would render such comparisons useless.
Lower-income middles class can't afford R$15 burgers with the average (not median, which is much lower) household income per capita being ~R$1000/month. In practice, less than 20% of families make that much. With combos, 10 meals would account for 20% of pre-tax income.
Specially if you cannot freely convert VEB to any currency under any of the three (yes, three) official rates, unless you're a friend of the government.
You'll probably be fine with a small-time software business but you won't see anyone hurry to commit a bunch of cash to turn something into a $1B Venezuela unicorn...
This is essentially how inflation is calculated. Instead of just a big mac, an entire basket of predetermined everyday items and services are watched for changes and the fluctuation in prices are averaged for a domestic locale giving us the consumer price index. Then the numbers of the previous CPI are compared to the current.
Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized.
Interesting. Is there an existing standard for what everyday goods are used in determining inflation? I understand the usefulness of a "quick 'n dirty" gauge like this big mac index (or the iPod index you mentioned), but I'd be surprised if there isn't some standard set of goods which are watched as general indicators of inflation.
Page 6 has the list and the weights of all goods per category. Housing is 42% of the CPI index, for example. Urban consumers vs Rural consumers are combined together, but the later tables split them out again.
People generally only talk about the single CPI number as an indicator in inflation. But a lot of work (and tables) go into that number.
Additionally, depending on what you're trying to measure, there are a variety of different sorts of ways to adjust for inflation. The CPI is a measure of consumer prices, and used by the Fed as a target for inflation in order to maintain price stability, but there are others: http://www.measuringworth.com/uscompare/
The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The Federal Reserve itself thinks that it's a little bit on the high side, not doing enough to adjust for the changes that occur when better products are introduced or when people change their purchasing behavior (e.g. switching to generic products): http://www.frbsf.org/economic-research/publications/economic...
> The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number.
The CPI doesn't even in theory try to do that, which is why it includes CPI-U, CPI-W, and C-CPI-U, each of which is tracked raw and seasonally adjusted, and each of which contains numerous measures (not a single number), the most frequently used of which seem to be the "all items", "all items less food and energy", "food", "energy", and "gasoline" components. (And all of which relate to US urban consumers -- for CPI-U and C-CPI-U -- or a subset thereof -- for CPI-W -- which are less than 300 million people.)
There is a standard but it changes with the times and the location. As indicated below it can be manipulated by adding or removing items that fluctuate wildly. There is a lot of disagreement about whether it is a good measure, what to include, and how to use it once it has been measured.
The CPI, in America at least, is literally thousands of items. Probably stuff like bus pass, bread, milk, a hammer a Daisy Red Ryder BBGun, etc.
Obviously a the bbgun was a joke, but I wouldn't be surprised if bullets or ammo made the cut.
I would certainly put a brick of .22LR cartridges in the US basket, along with a box of 12ga shotgun shells, if nothing else.
When you change the items in the basket, you make the index basically incomparable with previously used measures. That is what makes it such a juicy target for politicians. And you have to change it at some point or another, because new products get invented. For instance, if your basket does not now contain a month of cellular phone service, it needs to be updated.
The standard is not a list of products, but the idea that the basket should contain items that represent the consumption of either companies or the public reasonably well.
This means the basket might differ from country to country, because consumption patterns are different.
> Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized.
I also remember seeing something similar using the average cost of a pint of beer as a percentage of an average soldier's wages. Specifically, I remember people using it to compare the economies of fantasy worlds to our own.
This Planet Money episode explains this well, and walks through a day in the life with one of the people who actually walks around and monitors prices.
Exactly - The BLS takes a selection of 400 common household items to calculate the rate of inflation [0]. It's really quite interesting what items they include and their thought process behind it.
Interesting. The life-giving essentials like food and healthcare have increased, while superfluous things like toys and TVs have decreased. (With the exception maybe being clothing). Good news if working-class families can figure out how to convert their 40-inch plasma TV into a defibulator.
I'm actually using this data for some pricing decisions for online products that we sell.
I've actually made my own version that provides a bit more explanation and it targeted towards marketers and the likes
http://www.bigmacindexconverter.com/
I enjoy that they added the dataset for download this year, and some other changes. But the dataset's not available at the moment. And it's in .xls format when it should just be a csv.
The World Bank publishes PPP conversion factors: http://data.worldbank.org/indicator/PA.NUS.PPPC.RF
"It tells how many dollars are needed to buy a dollar's worth of goods in the country as compared to the United States."
I prefer this to absolute numbers as the absolute number fluctuates with the exchange rate.
is it a good idea to group so much of the EU together? Some economies there are not as able to handle the single currency as others. Stronger states with better managed economies put more pressure on weaker economies with regards to borrowing costs and more.
I've heard this POV several times. If such a good idea why don't USA, China or India consider breaking regions into individual currencies. You never hear this.
I'm not saying this POV either right or wrong. Just Each of these other countries is 'Europe" or larger in their own right with distinct regional wealth differences. So why is this important for Europe and not other large diverse countries?
Europe is not a country. It does not have unified economic policy. If Europe started acting like a nation, and instituted a unified economic policy over the whole Euro-zone, then it would probably work just fine. However, there is no indication that will ever do that because all of the constituent countries like their sovereignty too much.
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[ 3.5 ms ] story [ 112 ms ] threadAnd is there another measuring stick that would give us the simultaneous jab against globalization and corporate imperialism?
If insulin became expensive during the war, that was only because things became more expensive in general, right? That's what the index should capture: "you need 3x in dollar terms to buy the same stuff in Libya."
Guiness for example is going to cost a lot to ship, or local beer could be very low quality in order to keep the price affordable.
You need something perishable, and of low enough cost that importing is unlikley.
Bread would be a good option but has the issue that it's not as common in Japan as France, it also varies wildley where as a big mac is generally consistent.
So, using something like the potato would eliminate that sort of "bias" to the product, as no one party controls the potato, and thus couldn't artificially set the price higher at a whim. If the price of the potato rose, it would be because the whole market reacted to some changes to transportation or production costs, not because management has decided that they want to build their brand as being expensive and exclusive (which we know happens with a lot of brand products).
What is a 'potato'?
2) What if potatoes become hip?
3) If you want auditable PPP conversion rates: http://data.worldbank.org/indicator/PA.NUS.PPP
It strikes me that currency exchange rate is a very inconspicuous thing with a big effect. Unlike inflation, interest rates, or how much rent you pay--which everyone is aware of--most people don't sense changes in exchange rate, the effect of which is just as profound.
[1] http://brazilsense.com/index.php?title=Items_more_expensive_....
For a weird graph look at Venezuela, $9.08 in 2013 and $0.67 now.
Perhaps if you're American. Here in Canada, people are made aware of the US/CDN exchange rate daily, and large moves (like recently) are news.
In the U.S, I only go to McDonald's if I'm alone and don't have an option( Chipotle is closed).
In Brazil, you'll see some families choosing it over local cuisine for 'modernity' or even 'sophistication'.
You're either talking about lower-lower middle class, or far outside the large metros, I presume?
I'm amazed no one mentioned Bob's Burgers, at any rate. Are you in the same Brazil I'm in?
Data is a couple years old, but still relevant: https://sacrariopessoal.files.wordpress.com/2014/10/faixascm...
According to the adjusted index, it's still the world's most overvalued currency.
You'll probably be fine with a small-time software business but you won't see anyone hurry to commit a bunch of cash to turn something into a $1B Venezuela unicorn...
Also, some people have taken to using the "iPod index" or really any uniform product that is widely available and standardized.
http://www.bls.gov/cpi/cpid1505.pdf
Page 6 has the list and the weights of all goods per category. Housing is 42% of the CPI index, for example. Urban consumers vs Rural consumers are combined together, but the later tables split them out again.
People generally only talk about the single CPI number as an indicator in inflation. But a lot of work (and tables) go into that number.
The CPI is flawed, of course, like any attempt to turn 300 million peoples' worth of purchases into a single number. The Federal Reserve itself thinks that it's a little bit on the high side, not doing enough to adjust for the changes that occur when better products are introduced or when people change their purchasing behavior (e.g. switching to generic products): http://www.frbsf.org/economic-research/publications/economic...
> a lot of work (and tables) go into that number.
Economics is a whole field of study.
The CPI doesn't even in theory try to do that, which is why it includes CPI-U, CPI-W, and C-CPI-U, each of which is tracked raw and seasonally adjusted, and each of which contains numerous measures (not a single number), the most frequently used of which seem to be the "all items", "all items less food and energy", "food", "energy", and "gasoline" components. (And all of which relate to US urban consumers -- for CPI-U and C-CPI-U -- or a subset thereof -- for CPI-W -- which are less than 300 million people.)
For example The last UK government didn't like the new CPIH index and the ONS (office of national statistics) was told to go away and try again.
The CPI, in America at least, is literally thousands of items. Probably stuff like bus pass, bread, milk, a hammer a Daisy Red Ryder BBGun, etc.
Obviously a the bbgun was a joke, but I wouldn't be surprised if bullets or ammo made the cut.
When you change the items in the basket, you make the index basically incomparable with previously used measures. That is what makes it such a juicy target for politicians. And you have to change it at some point or another, because new products get invented. For instance, if your basket does not now contain a month of cellular phone service, it needs to be updated.
This means the basket might differ from country to country, because consumption patterns are different.
I also remember seeing something similar using the average cost of a pint of beer as a percentage of an average soldier's wages. Specifically, I remember people using it to compare the economies of fantasy worlds to our own.
http://www.npr.org/sections/money/2010/10/22/130757997/the-f...
[0] http://www.bls.gov/dolfaq/bls_ques3.htm
http://www.highcharts.com/
I've actually made my own version that provides a bit more explanation and it targeted towards marketers and the likes http://www.bigmacindexconverter.com/
I prefer this to absolute numbers as the absolute number fluctuates with the exchange rate.
I'm not saying this POV either right or wrong. Just Each of these other countries is 'Europe" or larger in their own right with distinct regional wealth differences. So why is this important for Europe and not other large diverse countries?