Sunday, March 26, 2023

The Mexican peso, inflation and an iconic hamburger: The Big Mac Index

Mexico has hamburgers and McDonald’s The most expensive in Latin America, according to the Big Mac Index, below Venezuela, Guatemala, Peru, Honduras and Colombia, a review by The Economist magazine that compares the purchasing power of different countries’ currencies.

There are few products available with nearly the same amount of ingredients in many parts of the world as the Big Mac, the iconic hamburger from the McDonald’s fast food chain. Its size, its content and even the time you wait for its delivery are practically the same in any country, which is why the magazine economist It has been using it for 37 years as a reference to observe the value of currencies between countries.

This exercise is based on the principle of purchasing power parity (PPP), and like any economic theory it must be viewed, analyzed and interpreted with nuances and, above all, under the lens of temporality.

Everything in economics “depends” on many factors. Big Mac Index This is just one clue to the level of value misalignment between the Mexican peso, the Costa Rican colón, the Russian ruble and every other currency in the world.

Big Mac and the value of coins

At the end of 2022, the big Mac In Mexico it cost 79 pesos, while in the United States it was $5.36. The conversion gives an underlying exchange rate of 14.7 pesos per dollar, but according to inquiries the official exchange rate in the market is around 18.8 pesos per dollar. economist,

As the PPP theory states that the exchange rate should be determined by the goods and services that can be purchased with money in each country, the Mexican peso should depreciate by 21.8% under this theory. Of course, always following the route proposed by the London publication.

Additionally, a count was adjusted GDP per capita of countries. This is because it would be assumed that average prices are lower in the poorest countries because labor costs are lower. This adjustment allows you to see a fairer or more accurate clue of the value that each country’s currencies should have.

With this adjustment, the Mexican peso is worth only 6% less than it should be.

hello inflation

Many economists around the world have already made a confession: they underestimated the impact of inflation in 2020 as a drag on the global economy. Now, almost at the end of the first month of 2023, all pockets feel inflation, some more strongly than others.

The Big Mac and the Historical Series of Exercise Economists They are an easy way to understand how prices behave. Spoiler alert: Always on the rise.

records of inflation in Mexico He suggests that some of the ingredients in a classic burger have increased by double digits in just one year.

Let’s see December 2023:

  • The price of white bread is 27.1% higher than that of December 2022.
  • mayonnaise and mustard, 22.2% more.
  • lettuce, 21.6% higher.
  • Yellow Cheese, 13.9% higher.
  • Beef, up 7.9%.
  • Tomatoes, up 5.0%.

These calculations were processed economist With data from the National Consumer Price Index of will take (National Institute of Statistics and Geography).

The rate of inflation also varies from country to country because of the economic and social context and the policies to combat the wave of inflation.

For example, in Mexico, food was the item that posted the strongest price increase. Gas, electricity and fuel have become the most expensive in European countries.

Because of the direct link of exchange rates with inflation and interest rates (as part of monetary policy), purchasing power parity is not enough to determine a coin’s value, but it can provide clues.

At the end of 2022, Mexico closed with an inflation rate of 7.82% and an exchange rate close to 19 pesos per dollar. The peso is one of the emerging currencies that has corrected the most in value in early 2023, but government programs to reduce inflation are still not enough.

Big Mac Index economist This is no more than a theoretical exercise, but it provides an opportunity to analyze the behavior of currencies and their purchasing power in different parts of the world. It might not be as fun as eating a hamburger, but it might help you understand why they pay the price for what they do.

Nation World News Desk
Nation World News Desk
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