Big Mac Index

The Big Mac index is an informal gauge of whether currencies are trading at "fair" levels, based on the price of a McDonald's Big Mac hamburger around the world. It was created by the British magazine The Economist in 1986, as a deliberately light-hearted way to explain the theory of purchasing power parity, and is now updated twice a year, in January and July. The magazine publishes the underlying data and methods openly.

The index rests on the "law of one price": in the long run, an identical product should cost the same everywhere once prices are converted at the market exchange rate. Because a Big Mac is made to a similar recipe in dozens of countries, comparing its price gives a rough reading of whether a currency is too cheap or too expensive against the US dollar. Economists sometimes call this approach "burgernomics".

Suppose the same burger costs a lot more in dollars in one country than in another. Either the burger is genuinely pricier to make there, or that country's money is "too strong": converting it at the official rate makes everything look expensive to visitors. The Big Mac index assumes the second explanation, at least in part.

Travellers do a version of this instinctively. If a simple meal abroad feels very cheap, the local currency is probably weak against your own; if it feels outrageous, your money is weak there. The index turns that feeling into a number using one well-known product that is sold almost everywhere.

First, the implied purchasing power parity exchange rate is the local price divided by the US price:

Then the over- or undervaluation compares that implied rate with the actual market rate:

• $P_{\text{local}}$ is the price of a Big Mac in local currency.
• $P_{\text{US}}$ is the average US price in dollars.
• $E$ is the market exchange rate in local currency per dollar.
• A negative result means the currency is undervalued against the dollar; a positive one means it is overvalued.

Worked example with round numbers: a Big Mac costs 600 units of a local currency and 6 dollars in the United States, so the implied PPP rate is 100 units per dollar. If the market rate is 150 units per dollar, the valuation is $100 \div 150 - 1 \approx -0.33$: the currency looks about 33% undervalued.

In The Economist's July 2026 data, a Big Mac cost an average of 6.22 dollars in the United States. Switzerland was the most expensive market, at about 9.04 dollars, implying the Swiss franc was roughly 45% overvalued against the dollar. The cheapest burgers in the survey of 54 countries were in Indonesia, Taiwan and India, at around 2.40 dollars, implying undervaluations of about 60% for the rupiah and the Indian rupee. In Pakistan a Big Mac cost 1,080 rupees, about 3.89 dollars at the market rate, so the Pakistani rupee appeared about 38% undervalued. The euro area and Britain came out modestly overvalued.

In India, where McDonald's does not sell beef, the index uses the chicken Maharaja Mac instead, one of several local adjustments the magazine makes.

Poorer countries almost always look undervalued on the raw index. This is expected: burgers include local labour, rent and services, which cost less where wages and productivity are lower. Economists explain this pattern through the Balassa–Samuelson effect: productivity growth in traded goods raises wages across the economy, pushing up prices of non-traded services in richer countries.

Since 2011 The Economist has also published an adjusted index, which uses the relationship between Big Mac prices and GDP per person across countries to estimate what a burger "should" cost in each country given its income. On this measure many emerging-market currencies look much closer to fair value.

The index has become a popular teaching tool and a quick check on official estimates such as the World Bank's purchasing power comparisons. Some academic studies have found that, over long periods, large deviations on the index tend to narrow, consistent with PPP holding loosely in the long run. It is also cited in debates about currency manipulation and in cost-of-living comparisons.

It has clear limits:

• Non-traded inputs. Much of a burger's cost is rent, wages and energy, which cannot be traded across borders, so prices need not converge.
• Market power and taxes. Local competition, sales taxes, import tariffs on beef and the brand's status in each country all affect pricing.
• One product. A single item cannot capture a whole price level the way a full consumer price index basket does.
• Policy pricing. In countries with price controls or a dual exchange rate, the reading can be distorted.

For broader measures of currency value, economists use the real effective exchange rate and the trade-weighted exchange rate, and models of overshooting explain why market rates can stay far from PPP for years.

• The Economist: Big Mac index data and methodology (GitHub)
• World Bank: International Comparison Program