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Economy

Is The Big Mac Index Obsolete?

Japan's Nomura company thinks technology prices tell us more about currency comparisons than fast food.

Not so big anymore
Not so big anymore
Camélia Echchihab

PARIS — A Japanese financial firm says it's high time to replace the now famous "Big Mac index," introduced 30 years ago by the London-based magazine The Economist, with something that better fits our digital era: an "iPhone index."

The logic behind the proposal, put forth by the company Nomura, is that consumers today are more likely to cross borders to find a cheaper iPhone than they are to buy a better priced McDonald's burger.

Both indices compare currencies on the basis of purchasing power parity (PPP), and are tools allowing economists and consumers alike to see which currencies are overvalued and which are undervalued.

The scales work by comparing the different prices in each country of a good that is uniformly sold and produced across the globe — one as ubiquitous as a McDonald's Big Mac or an Apple iPhone — to discover the currency effect that determines the good's varying prices. A Big Mac, for example, is 1.3 times more expensive in Switzerland than it is in the United States, meaning the Swiss franc is 30.7% overvalued compared to the U.S. dollar.

Nomura researcher Bilal Hafeez, formerly the head of foreign exchange research at Deutsche Bank, says the iPhone, given what it demonstrates about currency effects on technological products, is now a better product for PPP comparison than the Big Mac.

When the Big Mac is exchanged with the iPhone as the product of reference, he explains, the rankings of how currencies are valued is completely turned on its head.

With the iPhone index, the most overvalued currencies compared to the U.S. dollar are the Brazilian real (60%), the Turkish lira (54%), and the Russian ruble (31%). The Big Mac index, in contrast, identifies the Swiss, Swedish, and Norwegian currencies as the world's most overvalued. Unlike its Big Mac counterpart, the iPhone index finds that every currency in the world is overvalued compared to the U.S. dollar, as Apple sells its iPhones cheapest in the United States.

So which one is the most accurate? The answer isn't entirely clear, since the two indices analyze different effects. The Big Mac index is heavily influenced by labor costs in each country and measures the effect those costs have on PPP. As such, it lists many emerging market currencies as undervalued. The iPhone index, on the other hand, reflects the quality of local infrastructure to produce high-tech and luxury goods, revealing a different set of comparisons.

The indices do agree on some points, and there are a few countries whose currencies are overvalued and expensive any way you look at them: Sweden and Norway. Looking for a cheap burger and a new phone? Try Mexico or Hong Kong.

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FOCUS: Russia-Ukraine War

Now Or Never? The Five Reasons Putin Is Moving Up His “Spring Offensive” To February

The Russian army is fighting fiercely for every kilometer in the Donbas, amid reports of new masses of troops arriving in Ukraine. By most accounts, it looks like Putin has moved up the calendar on a major assault that was originally planned after the winter thaw.

Photo of Russian President Vladimir Putin in January 2023 with a vehicle bearing the letter Z in the background

Russian President Vladimir Putin in January 2023

Anna Akage

-Analysis-

As February began, fierce battles were raging in both the Luhansk and Donetsk regions of eastern Ukraine, with elite units of the Russian army and fighters from the Wagner Group mercenary outfit engaged in the action.

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More Russian troops and equipment from all quarters are descending toward a widening front line, all overseen by General Valery Gerasimov, a veteran of the Russian military, who is now commanding both regular defense department battalions and the Wagner soldiers. Gerasimov took over last month, appointed by President Vladimir Putin who was apparently dissatisfied with three previous top commanders of the war.

Taken together, these and other signs from the past week appear to point to Russia launching a major offensive on Ukraine — now. Russia increased the number of missile launchers in the Black Sea with 16 "Kalibr" salvos. In the Luhansk region, they continue to conduct offensive actions in the Lyman and Bakhmut directions. Some reports say the attack will match in breadth and intensity the initial invasion last February.

If confirmed, this imminent Russian assault would be a significant acceleration on the battlefield calendar, after most had been expecting Putin to launch the attack in the spring. Why has Moscow changed its mind?

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