Invented in 1986 as a light-hearted guide to purchasing power parity, the Big Mac Index compares the cost of a McDonald’s Big Mac burger in countries across the world.
Using the US dollar as the base rate, the 2017 Index showed a Big Mac in Norway to cost $5.67 (49 kroner) compared with $5.06 in the US, meaning the krone is overvalued by 12 percent.
The exchange rate that would equalize the price of a burger in the two countries is 9.68 kroner to the dollar, while the actual exchange rate is 8.65 kroner.
Norway was surpassed only by Switzerland, where a Big Mac costs $6.35 and the Swiss franc is overvalued by 25.5 percent.
Sweden, Venezuela and Brazil were the only other countries to have pricier burgers than the States.
According to this ‘burgernomics’, the euro and the pound are undervalued by 19.7 percent and 26.3 percent respectively, said The Economist.
However, the situation is different in an adjusted version of the index which takes into account labour costs and GDP.
When adjusting for Norway’s average income, the kroner is actually undervalued by 3.3 percent, The Economist found.
Brazil topped the adjusted index, which showed the Brazilian real to be 66 percent overvalued.
“This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower,” said the Index authors.
“The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.”
Although Switzerland has topped the raw index for a few years running, Norway had the world’s most expensive Big Macs as recently as 2014.
Source: The Local
17 January 2017