The Big Mac Index: A Juicy Lens into the Global Economy

By Jt Pinna

Last week, I referenced the Big Mac index when speaking to a friend about the economy. I was surprised that none of them had ever heard about it.   I feel compelled to share what little I know about it and what I can aggregate from these conversations.  As a business owner and someone who is slugging it out to juggle a small business, maintenance on a wood saltbox home that still isn’t paid off, and running a small NGO, the Big Mac Index is something I regularly use to gauge where spending and the overall economy for us regular people are.

Most consider classic indicators like Gross Domestic Product (GDP), employment rates, or the stock market when considering the economy. These metrics dominate headlines, financial reports, and government policies, but their detachment from everyday life raises questions about their relevance. In contrast, a humble but surprisingly insightful metric has gained traction among economists and curious minds alike: the Big Mac Index. Created by The Economist in 1986 as a lighthearted way to gauge currency valuation, this burger-based measure may tell us more about the global economy's health than traditional indicators.

Why GDP, Employment, and the Stock Market Fail to Reflect Real-Life Economics

GDP: An Outdated and Oversimplified View

GDP measures the total value of goods and services produced in a country, but it falls short of capturing economic well-being. For instance, the United States saw a GDP growth rate of 2.1% in 2023, yet nearly 40% of Americans reported living paycheck to paycheck. GDP does not account for income inequality or the cost of living, two factors critical to understanding real economic conditions.

For example, India's GDP grew at a robust 6.3% in 2023, yet inflation on essential goods outpaced wage growth, leaving the average household worse off. GDP measures activity but not the distribution or impact of that activity on everyday people.

Employment Rates: Misleading on Their Own

While low unemployment rates are often celebrated, they don’t reveal the quality of jobs or their pay. The U.S. unemployment rate hovered around 3.9% in late 2023, signaling a strong labor market. However, this figure ignored the rise in part-time and gig work that lacks benefits and stability.

For instance, in Spain, unemployment dropped from 13.1% to 11.9% in 2023, but youth unemployment remained stubbornly high at 27%. These numbers don’t reflect the economic struggles of the underemployed or precariously employed.

The Stock Market: A Mirage of Prosperity

The stock market is perhaps the most misleading economic indicator. While the S&P 500 surged by 15% in 2023, nearly 90% of stock market wealth remains concentrated in the top 10% of U.S. households. Rising stock prices do little to improve day-to-day financial stability for the average person.

In 2023, tech companies like NVIDIA and Apple saw record valuations, coinciding with layoffs and increasing housing costs. For Main Street, the stock market's gains rarely translate into tangible benefits.

The Big Mac Index: An Accessible Economic Thermometer

The Big Mac Index uses the price of a McDonald's Big Mac in various countries to evaluate purchasing power parity (PPP). Simply put, it measures how much a typical product costs in different economies, reflecting consumers' real-world buying power. Unlike GDP or the stock market, the Big Mac Index offers a relatively tangible understanding of economic disparities.

Case Study: Switzerland vs. Egypt

In July 2023, the price of a Big Mac in Switzerland was $7.75, while in Egypt, it was $1.95. This stark contrast highlights disparities in currency strength and purchasing power. Despite Egypt's GDP growth of 4.1%, the Big Mac Index revealed significant inflation and currency devaluation, showing how ordinary Egyptians struggled to afford essential goods.

Tracking Inflation and Cost of Living

In December 2023, a Big Mac cost 2,690 pesos in Argentina, compared to 850 pesos in 2022—a 216% increase. While official inflation figures reported a 140% rise, the Big Mac Index painted a more vivid picture of the currency's collapse and its impact on citizens’ everyday lives.

China: A Tale of Economic Slowdown

China’s GDP grew by 5.2% in 2023, but the Big Mac Index told a different story. The price of a Big Mac fell by 2.8% year-over-year, reflecting deflationary pressures and a slowing economy. This price drop aligned with reduced consumer spending and rising youth unemployment, capturing economic realities that GDP could not.

 Why the Big Mac Index Resonates

Accessibility: Unlike GDP figures or stock market trends, the Big Mac Index is relatable. People everywhere understand the significance of being able to afford a meal.

Global Comparability: The index provides an apples-to-apples comparison across countries, offering insight into currency strength, inflation, and real wages.

Real-World Impact: It reflects what truly matters to consumers: how far their money goes.

For example, in the United States, the average Big Mac cost $5.58 in 2023, up from $5.15 in 2022. This 8.3% increase exceeded the average wage growth of 5.2%, highlighting the erosion of purchasing power despite substantial employment numbers.

A Juicy Conclusion

The Big Mac Index may have started as a playful experiment, but its simplicity and relatability make it a powerful tool for understanding the global economy. While GDP, employment rates, and stock market indices remain valuable, they fail to capture the lived experiences of everyday people. The next time someone asks how the economy is doing, you might want to point them to the nearest McDonald's menu.

Sometimes, the best insights are found not in spreadsheets or trading floors but between two sesame-seed buns.

P.S. The McDonald’s Advantage: Stability in a Volatile Economy

It’s worth noting that McDonald’s unique business model makes the Big Mac Index even more reliable as an economic indicator. McDonald’s owns the majority of its real estate, giving it insulation from the volatility of fluctuating property markets. Additionally, its vertically integrated supply chain allows it to control costs more effectively than many other businesses.

These factors mean that McDonald’s is shielded from many variables that create instability for other companies, such as rent hikes or supply chain disruptions. As a result, its pricing and customer data are less influenced by external shocks, providing a clearer picture of economic conditions.

Tracking McDonald’s average number of customers over time can offer another layer of insight. When people have more expendable income, they are more likely to spend on fast food and convenience items. Conversely, a drop in customers might signal tighter budgets and reduced discretionary spending.

In this way, McDonald’s not only serves up burgers but also serves as a steady barometer of consumer confidence and economic health—one bite at a time.