Everything About the Big Mac

In the UK, a Big Mac costs £5.29, whereas in the US, it costs $6.12. The exchange rate that is implied is 0.86. The fact that this is different from the real exchange rate of 0.75 means that the British pound is worth 15.7% more than it should be.

The Economist came up with the Big Mac index in 1986 as a fun way to see if currencies are at the "right" level. The idea behind it is that exchange rates should move toward the rate that would make the prices of the same basket of goods and services (in this case, a burger) the same in any two nations over time. This is called purchasing-power parity (PPP).

Burgernomics was never meant to be a perfect measure of currency misalignment; it was only a way to make exchange-rate theory easier to understand. The Big Mac index, on the other hand, has become a global standard. It is in many economics textbooks and has been the topic of several academic studies. We also make a gourmet version of the index for people who really care about their fast food.

The GDP-adjusted index answers the question of why you would anticipate the average price of a burger to be lower in poor countries than in rich ones, since labor costs are lower there. PPP shows where exchange rates should be going in the long run when a country like China gets richer, but it doesn't offer anything about the current equilibrium rate. Prices and GDP per person may be a better way to figure out what a currency is worth right now.

In July 2022, we changed the Big Mac index to utilize a McDonald's price for the US. We have revised the way we construct the GDP-adjusted index. From now on, the whole history of the index will be updated whenever the IMF updates its historical GDP series. You can find the old versions of both indices in our archive.