Why The Economist Tracks Burgers to Price Currencies

In September 1986, The Economist published a back-page chart by editor Pam Woodall comparing the dollar price of a McDonald's Big Mac in six countries. The point was pedagogical. If purchasing power parity holds — the textbook idea that exchange rates should equalize the cost of identical goods across countries — then a Big Mac should cost roughly the same everywhere. It does not. The gaps reveal currencies the market has pushed away from PPP.

The Big Mac was chosen for boring, useful reasons. It is sold in roughly 70 countries. The recipe is fairly standardized. Its price embeds local labor, rent, beef, bread, packaging, and franchise economics — a mini-basket of inputs that varies with each country's overall price level. McDonald's prices it for local customers, not for tourists, which makes it a clean read on what locals can actually pay.

The index works like this. In January 2024, a Big Mac cost $5.69 in the United States and 24 yuan in China — about $3.37 at market exchange rates. The implied PPP exchange rate would be 4.22 yuan per dollar; the actual rate was 7.12. By the burger's logic, the yuan was undervalued by about 41 percent. Switzerland sits at the other end: the franc has been chronically overvalued against the dollar by 30 to 40 percent for years.

Economists treat the index as suggestive, not authoritative. It ignores tradable-versus-non-tradable goods distinctions, taxes, and the fact that poor countries systematically have lower service prices because labor is cheaper. The Economist now publishes a GDP-adjusted version that tries to control for that. The original burger chart is still its most-cited piece of economic journalism, picked up by the IMF, the Federal Reserve, and several finance ministries.