Still looking for your summer vacation spot? If you have a limited budget, why not let Big Mac prices help you find the best bargain destination.
To amuse and also inform its readers, the Big Mac index was invented by the Economist magazine back in 1980s to illustrate how exchange rates can be misaligned relative to real economics. According to the purchasing-power parity (PPP) theory, prices on identical goods – in this case, Big Macs – around the world should be close to each other when denominated in a chosen currency.
However, the theory does not hold well in the real world. This should not be surprising. For instance, in Washington DC, I can purchase a Big Mac with $4.80. Now, if I go to Zurich and try to buy the same burger (that is made the same MacDonald way), I need to hand over $7.55.
Why does it cost so much more? It is a simple FX story. In order to enjoy my burger in Zurich, I have to first convert my dollars into Swiss francs using today’s market exchange rates of 0.9550. So my one dollar would not even convert to one franc today. Back in 2001- when I was visiting Zurich after my graduate school – I received 1.80 francs or would have enjoyed the burger for about $3.50.
Today’s franc has become very expensive from the dollar’s perspective. In the last few months, the ongoing Greek debt crisis and the real possibility of Greece exiting the Eurozone if there is no additional bailout loan, have alarmed many investors into seeking out a safe-haven currency. The Swiss franc has a long history of being a safe and stable currency and has historically benefited from an inflow of funds.
So, I recommend that you stay away from Zurich this year. Your vacation budget will not go far. On the other hand, comparing Big Mac dollar prices, here are my top five “get-most-for-your-dollar” destinations.
- India – $1.89 Big Mac
- South Africa – $2.22 Big Mac
- Poland – $2.48 Big Mac
- Czech Republic – $2.92 Big Mac
- Japan – $3.14 Big Mac (Surprise!)
What about France and Italy? The euro is about 11 percent less expensive in dollar terms compared to last year. This explains why Expedia noticed that hotel searches for Rome and Paris destinations surged by 30 percent recently.
A word of caution, I am an economist, not a travel advisor. I look for opportunities to take full advantage of stretching the purchasing power of my hard earn dollars. So, don’t fault me for my possible lack of aesthetics in my selections.
Enjoy your dollar this year.