Thursday, March 23, 2017

Big Mac Index

    A colleague recently visited and commented on how expensive the food was in Switzerland, especially at McDonalds.  Because of his comment, I mentioned the Big Mac Index. This index was created in 1986 and is based upon price of the Big Mac sandwich at McDonalds.
It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.
      Here is McDonald's price for a Big Mac sandwich in Zug, Switzerland.

     Yes, you read that correctly, 6.50 CHF (including 8% VAT). While in Roseville, Minnesota, the price of a Big Mac sandwich is $4.47 ($4.15 + 7.625% sales tax). Once you factor in the current exchange rate of 1 CHF = $1.01 (according to Google, on March 26, 2017), a Big Mac sandwich in Zug, Switzerland costs the equivalent of $6.57. Thus, the Swiss Franc is about 47% overvalued.

    If you find the cost of a Big Mac sandwich a bit steep, then you will find the cost of the meal deals a bit more out of touch.

    Yes, a small meal deal is 11.70 CHF, and a medium meal deal is 13.00 CHF.  And for comparison, a meal deal in Minnesota costs $6.35.

- Henry Park

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