Wednesday, January 11, 2012

Brazil's Rank in the Big Mac Index

For years now, the influential English weekly newspaper The Economist has annually published something called The Big Mac Index. Basically, the magazine plots the local price of a Big Mac in a number of countries (expressed in US dollars) and uses their ranking to indicate which countries have over-valued or under-valued currencies. Countries in which the Big Mac costs more than in the USA have, according to The Economist, over-valued currencies and countries which have a cheaper Big Mac have under-valued currencies.

In their most recent edition of The Big Mac Index, the Economist has ranked Brazil as having the fourth most expensive Big Mac in the world, indicating a severe over-valuation for Brazil's currency, the Real (pronounced hay-aww). The sandwich is more expensive only in three countries traditionally known for being very pricy - Switzerland, Norway and Sweden. The average price for a Big Mac in Brazil is USD $5.68, which is 32% higher than the US average of $4.20, indicating that the Real is over-valued by that same percentage.

Because Brazil is a South American country, many people not familiar with the Brazilian economy assume that it's an expensive country and a cheap place to visit. The Big Mac index shows that not to be necessarily true. Brazil can be very expensive, especially in the big cities and in areas that host a large number of tourists. And certainly, Big Mac are expensive here, as is everything at McDonald's. We here at Flavors of Brazil have never quite been able to figure out how McD's gets away with charging what they charge. Part is the allure and appeal of American culture, which Brazilians are not immune to. Eating in McDonald's is seen as an exotic treat, even a sophisticated one, not as a cheap and cheerful stomachful of fast food.

But Brazil, fortunately, is more than McDonald's and a tasty and well-made meal in an unassuming but clean restaurant can cost much less than a Big Mac in a McDonald's. The large Brazilian middle class, particularly the lower middle class, probably doesn't spend much of their discretionary income on Big Macs. When they eat out, they're far more likely to go to a homestyle restaurant where they can get rice, beans, salad and a piece of meat for the same price.

Here's a graph of the latest Big Mac Index. It's in Portuguese, but it's quite understandable for the most part. Try to figure out the countries by their Portuguese names (some help on lookalike country names Suíça and Suécia- they are Switzerland and Sweden respectively). Note that in India McDonald's doesn't sell Big Macs, as the eating of beef is prohibited by law. The Indian price is for something called a Maharaja Mac, made with chicken.

3 comments:

  1. Nice article about one of my favourite publications, The Economist. Just bear in mind that they prefer to be called a weekly newspaper, not a magazine. I quite understand their point as calling them a magazine somehow diminishes how serious and worthy they are, and would be like comparing them to Time or Veja :)

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  2. Thanks for telling me about The Economist's preferred form of address. I didn't know that. I've edited the text to conform.
    Cheers,

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