Big Mac index

economics

Written byKarl Montevirgen

Fact-checked byThe Editors of Encyclopaedia Britannica

Cheeseburger with lettuce, tomato, onions, and bacon in front of U.K., Brazil, Japan, and U.S. flags on a yellow background.

Purchasing power parity on a sesame seed bun.

Currency values vary from country to country. For example, a dollar spent in the U.S. might not buy the same amount of goods in another country. So, when comparing economies, it isn’t enough to just find equivalence between two currencies—you have to consider how far that money actually goes.

But how do you compare purchasing power across multiple currencies at once? You start with a common benchmark. One of the simplest benchmarks comes in the form of a popular consumable: the iconic McDonald’s Big Mac hamburger. This informal benchmark is called the Big Mac index.

What is the Big Mac index?

The Big Mac index is a price index that shows the cost of a Big Mac across more than 50 countries and currencies. Developed by The Economist editor Pam Woodall in 1986 as a lighthearted way to illustrate purchasing power parity (PPP), the magazine has been publishing the index ever since. Its original purpose wasn’t to compare burger prices, but to show whether a country’s currency was overvalued or undervalued against the U.S. dollar.

McDonald’s flagship burger is served across roughly 60% of the world using the same core ingredients—a Big Mac in one country is roughly the same in another. This consistency gives the index plenty of breadth, even if it’s lacking in depth.

In other words, the Big Mac index may not be the most comprehensive way to gauge purchasing power, but it can still offer valuable insight into the relative value of currencies and the economies behind them.

Figure 1: BIG MACS ALL OVER THE MAP. As of January 2025, a Big Mac cost, on average, $5.79 in the U.S. Depending on a country's exchange rate vs. the dollar and the cost of inputs (e.g., wages, commodities prices, and supply chain dynamics), your burger will cost more, less, or about the same. Switzerland, at $7.99, has the world's highest average selling price, while the best Big Mac bargains can be found in Taiwan ($2.38). Data source: The Economist.

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Why compare Big Mac prices?

Understanding Big Mac PPP (aka “Burgernomics”) requires a deeper dive into the theory of purchasing power parity. The term “parity” means the state of being equal, so purchasing power parity simply means equality in buying power.

If all economies and currencies were “on par” with one another, then a basket of goods worth $10 in the U.S. should be the same in another country. But even then, a basket of grocery items may differ greatly from one country to the next. This is where the Big Mac comes in handy, because no matter where you go, it’s made of the same core components. If you’re old enough to know the jingle, sing along: Two all-beef patties, special sauce, lettuce, cheese, pickles, onions, on a sesame seed bun.

Those ingredients—and the costs to grow, transport, and serve them—reflect the everyday forces that drive purchasing power parity: local wages, supply chains, taxes, and the broader cost of doing business.

In reality, economies are hardly ever equal. Currency values fluctuate, and so do the costs behind each burger. That’s why the Big Mac’s price can vary widely from one country to the next—differences that reveal whether a currency may be stronger or weaker in real-world terms.

How is the Big Mac index calculated?

The basic idea behind the index is simple. Use the burger’s price to find what a currency’s exchange rate should be (its implied exchange rate), and then see how that compares to the actual market rate. Here’s how it’s usually done (using data from The Economist’s January 2025 Big Mac index data set):

1: Find the implied exchange rate.

Divide the price of a Big Mac in a foreign country’s currency by the price of a Big Mac in a base country’s currency (in this case, the United States).

For example:

In Japan, a Big Mac costs ¥480.
In the U.S., a Big Mac costs around $5.79.
The implied exchange rate (¥480/$5.79) is ¥82.90 per dollar.

2: Compare the implied exchange rate with the nominal market exchange rate.

Subtract the actual exchange rate from the implied exchange rate and divide the balance by the actual exchange rate.

The Big Mac implied exchange rate is ¥82.90.
The actual market exchange rate is ¥154.15.
The Japanese yen is undervalued by about 46% against the U.S. dollar: (82.90 – 154.35)/154.35 = -0.4629.

3: Interpret the result.

Because the implied rate (82.90) is lower than the actual rate (154.15), the yen buys fewer dollars in the real market than it should, based on the Big Mac price comparison. According to the Big Mac index, the yen is undervalued by about 46% against the dollar.

What Big Mac prices can reveal about an economy

Whether you’re a traveler, shopper, economist, or simply curious, the index can show how much value your money actually holds in different parts of the world. Here are a few insights it can provide:

Is a currency undervalued or overvalued? If a Big Mac costs much less in a given country relative to the U.S., it can mean that the currency in comparison may be “cheap” or undervalued relative to the U.S. dollar, or that the dollar is overvalued.
How far might your money go in different countries? If Big Macs sell for much more or much less, you can get a sense of which countries generally have cheaper or more expensive goods and services.
Which countries have higher wages and costs? The price of a Big Mac includes local business costs—rent, utilities, employee wages, ingredients, transport, taxes, etc. So the cheaper the Big Mac, the lower the potential cost of doing business. A more expensive burger says the opposite.
How close are economies to parity? If economies were perfectly efficient, then the same product should have the same cost everywhere. As you can see from the map in Figure 1, such parity doesn’t exist—but Big Mac prices can help you measure which countries may come closer than others.
How do prices change over time? Because the index has been tracked since the mid-1980s, Big Mac prices over time can reveal changes in inflation, wages, supply chain stability, and production efficiency. These changes in Big Mac prices may or may not follow a general price index such as the U.S. Consumer Price Index (see figure 2).
Is the market’s exchange rate “fair,” or is something else going on? If the exchange rate is lower or higher than the real-world exchange rate, it tells you that other forces—like government intervention, capital controls, or trade imbalances—may be at work, holding prices down or pushing them up.

Figure 2: CPI VS. BIG MAC. Although the Big Mac index is published as a global snapshot of purchasing power parity among countries, because The Economist has been publishing it for several decades, the index can also serve as a proxy for consumer inflation—similar, but not identical to, the consumer price index in any country that's part of the magazine's data set. Source: The Economist.

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The Big Mac index can also offer a window into global inequality. In some countries, a Big Mac is an affordable lunch, whereas in others, it’s a luxury item. That contrast tells you something about local incomes relative to global pricing. The Big Mac index remains an informal measure, not a comprehensive one. It’s a fun and revealing tool, but it can’t capture every factor behind currency values and living costs.

Limitations of the Big Mac index

There are many granular factors that can affect Big Mac pricing. Here are four to consider:

It represents a narrow slice of consumer goods. Despite reflecting a chain of input costs like ingredients, wages, rent, advertising, and taxes, a single product can’t represent a country’s entire “basket of goods,” which needs to include thousands of goods and services to measure differences in consumption and living standards.
Local production factors play a role in pricing. Some countries may find it cheaper or more expensive to source Big Mac ingredients, which affects the cost of production and, ultimately, the final price.
Market forces are broader than burger-based factors. Exchange rates are often driven by broad factors such as political stability, investment flows, trade balances, interest rates, and monetary policy. It’s not certain whether all of these factors will affect Big Mac production.
Cultural and market differences matter. In some places, the Big Mac is a luxury item; in others, it’s an affordable fast food. This factor limits the index’s comparability, regardless of the monetary differences.

The bottom line

The Big Mac index is a clever—and somewhat tongue-in-cheek—way to view global currency valuations and purchasing power parity. It offers quick, intuitive insights into how far money goes around the world. But don’t treat a single sandwich as a stand-in for the whole enchilada of consumer inflation and exchange-rate analysis—and definitely not as a reason to place a big trade in the retail forex market.

References

Our Big Mac Index Shows How Burger Prices Differ Across Borders | economist.com
How the Big Mac Index Relates to Overall Consumer Inflation | stlouisfed.org

Karl Montevirgen