The principle of compiling the index is simple. The Economist magazine assumed that a product like the Big Mac should cost the same in all corners of the world. However, anyone who has ever eaten at McDonald's abroad knows that this is not the case at all. Then The Economist made a second assumption based on the principle of purchasing power parity (PPI): the difference in the cost of a Big Mac in different countries depends not on the fact that somewhere it is cheaper to produce them and somewhere more expensive, but on the fact that the local currency is undervalued or overvalued in the market.
The 'ideal' cost of a hamburger was taken as its price in the USA. For example, if in the homeland of McDonald's a Big Mac costs $3.41, and in the UK - $4.01, this means that the British currency is overvalued relative to the American.
The most for a Big Mac have to pay residents of Iceland. There they pay $7.61 for a hamburger. For that much money in our McDonald's you can not only eat but also treat a friend to something if you wish. In second place in cost are Big Macs made in Norway. There they pay $6.88 for them. In third place are hamburgers from New Zealand - they are sold for $5.89. Also unlucky are residents of Switzerland - they have to pay $5.2 for a hamburger. In the eurozone, a Big Mac costs on average €3.06 ($4.17).
And to buy the cheapest hamburger in the world, you need to go to China - in the Celestial Empire a Big Mac costs only $1.45. Consequently, the Chinese currency is undervalued relative to the American by 58 percent.
Following the Big Mac from China is the Malaysian-style Big Mac - in that country it costs $1.6. In Egypt, the same hamburger is priced at $1.68, and in Indonesia at $1.76. In Thailand the sandwich costs $1.8, in Ukraine - $1.86. Cheaper than in Russia ($2.03), hamburgers are also in Sri Lanka and the Philippines.
Interestingly, according to the 'Big Mac index', the most fairly valued currency by the global market is... the Venezuelan bolivar. In a country whose leadership sharply opposes the American, a Big Mac costs only one percent more than in the USA. Also close to this indicator are the currencies of Hungary, Colombia, and Brazil.
Due to the success of the 'Big Mac index', other indices based on the cost of certain goods gradually began to appear in the world. For example, the Australian investment bank Commonwealth Securities introduced the 'iPod index', which is calculated by the price of the famous player. As of January 2007, the most expensive iPods were in Brazil - there they cost $327.71. The cheapest players turned out to be in Canada - there they could be purchased for $144.2. The results of the 'iPod index' turned out to be almost incomparable with the results of the 'Big Mac index'. For example, if the cheapest hamburgers are produced in China, then players there cost more than in Switzerland.
Therefore, the results of such studies must be treated with caution. In their outcomes, they rather resemble a double translation - if you translate 'Eugene Onegin' into English, and then, without looking at the original, translate it back into Russian, it might turn out recognizable. But definitely - it won't.
Alexander POLIVANOV.
Lenta.ru