Something for investors to chew on.Įxplore the Big Mac index with our interactive here. An analysis of data going back to 1986 shows that currencies deemed undervalued by the Big Mac index tend to strengthen, on average, in the subsequent ten years (and vice versa). But the dollar has so far remained strong.Īlthough PPP is a poor predictor of exchange rates in the short-term, it stacks up better over long periods. At the end of the year American yields began to fall as the global economy decelerated and investors anticipated a more doveish Federal Reserve.

Their currencies weakened as investors grew jittery. Based on our example with India, comparing the 127 Rupee cost of a Big Mac to the Rupee-Dollar exchange rate of 66.8 suggests that it would cost 1.90 to purchase a Big Mac in India. That was bad news for emerging-market economies with dollar-denominated debts. To find the implied exchange rate, we assume that the cost of a Big Mac in Rupees and dollars is equal. In 2018 higher interest rates and tax cuts made American assets more attractive, boosting the greenback’s value. Exchange rates can depart from fundamentals owing to monetary policy or changes in investors’ appetite for risk. Such deviations from burger parity may persist in 2019. Today Americans visiting Britain will find that Big Macs are 27% cheaper than at home. The pound, for example, looked reasonably priced five years ago.

But today the dollar towers over rich and poor alike.

It is not unusual for emerging-market currencies to look weak in our index.

Big mac index example with pesos