Burgernomics

Every six months, The Economist publishes a spreadsheet of hamburger prices, and every six months, economists, journalists, and trade negotiators genuinely pay attention to it. Earlier this year, the price gap between an American Big Mac and a Chinese one got cited in U.S. tariff talks with Beijing. This past summer, the index quietly turned 40.

Not bad for a joke.

01 — The IdeaOne Product, Sold Everywhere

In 1986, an Economist writer called Pam Woodall was trying to explain a fairly dry idea: that exchange rates should, over time, make an identical basket of goods cost roughly the same no matter where you buy it. Real price baskets run into the thousands of items, though, and comparing them across borders is a nightmare. So she picked one product instead — something sold in almost identical form in about 120 countries: the McDonald’s Big Mac.

The idea caught on well enough to spawn a small genre of imitators — a KFC-based version for African markets, where McDonald’s barely has a footprint; an IKEA bookcase version; even a Starbucks latte version. None of them really stuck the way the original did. Forty years on, the Big Mac is still the one everything else gets measured against.

The calculation itself couldn’t be simpler. Take a Big Mac’s local price, divide it by the U.S. price, and you get the exchange rate that would apply if the two currencies were perfectly matched. Stack that against the actual market rate, and the gap tells you whether a currency looks cheap or expensive.

02 — The TheoryWhat the Index Is Actually Testing

Underneath the burger is one of the oldest ideas in international economics: purchasing power parity, or PPP. The theory says exchange rates should, given enough time, adjust so an identical basket of goods costs about the same everywhere once you convert into one currency. Its strictest form — the law of one price — goes further and says a single identical good, a Big Mac included, ought to sell for the same price anywhere, once you strip out shipping and tariffs.

In practice, though, PPP behaves more like a long-run tendency than a rule you could set your watch by. Look back across nearly forty years of Big Mac surveys and only about one reading in eleven has landed within 5% of true parity. Most currencies drift, some for years on end. That’s not really a problem with the index — the drift is the whole point. It’s where the interesting economics actually lives, and it’s what the rest of this piece is about.

03 — The CatchIt’s Measuring Wages, Not Just Currencies

Here’s the complication: the index isn’t only measuring currencies. Whether it means to or not, it’s measuring wages too.

Labour alone makes up nearly half of what a Big Mac costs — more than the beef, cheese, and bread put together. Which means a burger in a rich country will always cost more than one in a poor country, even with both currencies priced perfectly fairly, simply because a McDonald’s worker in Switzerland earns something like $28 an hour, against $15 in the U.S. and a fraction of that in lower-income economies.

Economists have a name for this: the Balassa–Samuelson effect. Rich countries tend to have more productive export industries, and because workers can move between a country’s exporting sectors and its domestic ones, high wages in manufacturing spill over into everything else too — right down to whoever’s working the till.

That’s part of why The Economist also publishes a GDP-adjusted version, which tries to correct for income differences between countries. It’s an imperfect fix, but tested against real currency moves, it’s beaten the raw index about 74% of the time.

04 — Real WorldThe China Yuan Debate

No currency gets talked about on this index more than the yuan. It’s read as undervalued against the dollar in every survey since the early 1990s — by around 37% as of mid-2026 on the raw measure — and that gap keeps surfacing in U.S. trade policy arguments. Adjust for China’s income level, though, and the picture looks a lot closer to fair, sometimes even flipping the other way entirely. A rival measure built on iPad prices instead of burgers puts the undervaluation at just 3.7%. Same underlying data, different method, wildly different headline.

05 — The TwistWhen a Government Tried to Rig It

In 2011, there were reports that Argentina’s own commerce secretary had leaned on local McDonald’s franchises to keep Big Mac prices artificially low — apparently just to make the peso look less overvalued on the index. The Economist noticed anyway: Argentina’s Big Mac inflation was running at 19% a year against an official rate of 10%, the biggest gap of any country in the survey. Once the story made international headlines, prices jumped 26% within months.

06 — The VerdictBiased, But Not Useless

So does any of this actually hold up? Mostly, yes — once you know what you’re correcting for. A 15-year study of 24 major currencies found real, statistically significant mispricing in 20 of them. Eight currencies, the yuan among them, were undervalued in every single year of the study. That’s not noise. That’s a pattern.

Separately, though, more rigorous econometric testing of the underlying theory found that whether the numbers formally “prove” purchasing power parity depends a lot on which years and which countries happen to be included. Worth remembering next time a headline treats a Big Mac figure as gospel.