Today in Argentina, a Big Mac costs the equivalent of USD 4.13 in Argentine pesos. This the most it has cost since July 2012. In the United States, the same beefy sandwich now costs USD 5.20. According to the Big Mac Index, the difference means that the peso is devalued against the dollar.
Researchers at The Economist developed the Big Mac Index in 1986 to “make exchange-rate theory more digestible.” The index simplifies purchasing power parity (PPP), which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. If parity exists worldwide, the price of a product like a Big Mac, which has the same ingredients everywhere, should cost the same in every country.
According to the latest index, the Big Mac is currently cheapest in Ukraine (USD $1.70), Egypt (USD $1.75), Malaysia (USD $2) and South Africa (USD $2.26). Currencies in these countries are all drastically devalued against the dollar. There are only three countries – Switzerland, Norway, and Sweden – in which the sandwich costs more than it does in the States. Their currencies are therefore — according to the index — overvalued.
But something curious has happened in Argentina. If the index holds up, the exchange rate should be AR $13.21 to one US dollar, with the peso devalued by 22.2 percent. But the actual rate is AR $16.97 to the dollar. What accounts for the discrepancy?
McDonald’s in Argentina is owned and run by an Argentine company, which sets the franchise apart from most other U.S. food chains here, like Burger King and Starbucks. Under ex-President Cristina Kirchner, Domestic Trade Secretary Guillermo Moreno pressured McDonald’s into dropping the price of the Big Mac to disguise inflation and strengthen the peso on the index. The restaurant chain complied, but removed the item from sight on its main menu – that is, until international media outlets picked up on the ploy.
Moreno’s move has since rendered the index an inaccurate marker of inflation. So don’t let that bargain Big Mac get to your head. You still paid 70 pesos for a café con leche.