On 10 January 2019, the Economist came out with its latest Big Mac index, which compares the price of a Big Mac around the world.
The index uses the burger to compare the relative purchasing power of different currencies. Countries where Big Macs cost less than in the United States (in US$ terms) are deemed to have weak currencies, and those where they are more expensive are considered to have overvalued currencies.
In Switzerland McDonald’s customers have to cough up CHF 6.50 (US$6.62) for the world’s most expensive Big Macs, which implies that the Swiss franc is overvalued by 20%. Last year it was 28% overvalued.
So what happened? Two things. The value of the Swiss franc fell relative to the US$ narrowing the price gap by 2%. In addition, the US experienced Big Mac inflation of 6% – the US Big Mac price went from US$ 5.28 to US$ 5.58, while the Swiss price held steady at CHF 6.50.
One way to reduce currency overvaluation is keep local inflation relatively low.
Another three years of the US Big Mac price hike seen in 2018 would almost eliminate the Swiss franc’s burger-based over valuation, assuming no change in the price of the Swiss burger and no movement in the exchange rate.
The Big Mac index (The Economist website – in English)