The yen may have a similar “Sintra moment”, says Kit Juckes of Société Générale, a bank. The euro has shown that the merest hint of an end to easy monetary policy can prompt a sharp rally. But it might be harder for the yen to stay so cheap.

The Swiss and Norwegian currencies look dear, for instance, but both countries have big trade surpluses.Īmong rich countries, only Britain’s and Japan’s currencies stand out as bargains. So the price of a meal may not be a good guide to how competitive a country is in markets for tradable goods. The cost of a burger depends partly on untradable inputs, such as rent and wages, which are higher in the rich countries on the fringes of the euro zone. But that is not necessarily a sign that depreciation is overdue in these countries. Only in three countries (Switzerland, Norway and Sweden) do burgers cost more, based on current exchange rates. Measured against a basket of currencies, the dollar still looks dear. It was as if the foreign-exchange market suddenly woke up to how cheap it was. The euro surged after Mario Draghi, boss of the European Central Bank, hinted at a conference in Sintra, Portugal, that the bank’s bond purchases might soon be curtailed. The last time we looked at burgernomics, it was almost 16% undervalued. That implies the euro is undervalued by 8.4% against the dollar, our benchmark. The average cost of a Big Mac in the euro area (weighted by GDP) is €3.95, or $4.84 at the current exchange rate. If the local cost of a Big Mac converted into dollars is above $5.28, the average price in four American cities, a currency is dear if it is below that yardstick, it is cheap. Our basket contains only one item, but it is found in around 120 countries: a Big Mac hamburger. The index is based on the idea of purchasing-power parity, which says exchange rates should move towards the level that would make the price of a basket of goods the same in different countries.

Cost of big mac 2018