Is it possible that The Economist is moving towards replacing its Big Mac Index with a Big White Index?
Purchasing-Power Parity (PPP) says that exchange rates are correct when the price of similar goods are the same in each country. The Big Mac survey compares the price of a Big Mac all over the world. The Big Mac is, after all, a basket of standard ingredients put together in a consistent process.
Anyway, the latest 2009 survey says that should the Big Mac price in a country translated into dollars be above $3.54, its cost in America, the currency is overvalued; if it is below that benchmark, it is undervalued.
Before you get on that plane to South Africa for your bargin bun, let’s flash forward to the latest Potential PPP candidate. (Wow, that would be PPPP or 4P’s. A candidate for our acronym Hall of Fame.)
The following chart shows the worldwide retail price of Cocaine, as published in The Economist. Again a commodity with worldwide distribution, also some service component, plus transportation and energy costs included.
Is it possible that those mavens at The Economist are preparing us for an update to the Big Mac Index?
We report, you decide.