Big Mac Index Calculator

The Economist magazine started the Big Mac Index in 1986 as a half-joke and a serious teaching tool. The idea: a Big Mac is roughly the same product everywhere, so the price gap between two countries is a quick proxy for how far their exchange rate sits from purchasing power parity (PPP).

The formula has two pieces.

implied_exchange_rate = price_local / price_base

That is how many units of local currency one unit of the base currency ought to buy, judged on burger prices alone. Compare it to the actual market exchange rate:

valuation_pct = (implied_rate / actual_rate - 1) x 100

A positive number means the local currency is overvalued against the base — a Big Mac in Switzerland will cost more in dollar terms than a Big Mac in the US, suggesting the franc is “expensive.”

A negative number means undervalued. Russia, India, and most of Southeast Asia chronically show heavy undervaluation by this metric, which roughly tracks lower wages, lower rents, and cheaper inputs.

Why this is rough but useful: a Big Mac price bundles labor, rent, beef, wheat, and franchise fees. Tradeable goods (the beef, the cheese) should converge toward world prices over time. Non-tradeable inputs (rent, wages, local taxes) do not. The gap between the index and the market rate is mostly the non-tradeable share, which is why poorer countries always look “undervalued.”

A worked example. Take the United States as the base at $5.69 and Switzerland as the local country at CHF 6.50, with the market rate at 0.91 francs to the dollar.

• Implied rate = 6.50 / 5.69 = 1.1424 francs per dollar
• Valuation = (1.1424 / 0.91 − 1) × 100 = +25.5%

Read that back in plain money and it is obvious: at the real rate of 0.91, the Swiss burger costs 6.50 / 0.91 = $7.14 against $5.69 at home. You are paying a quarter more for the same sandwich, so the franc is expensive. Switzerland has topped this index almost every year it has been published, which says more about Swiss wages and rents than about beef.

Don’t read the Big Mac Index as a forecast. It is a snapshot of relative prices, not a prediction that the Russian ruble will rally because it is cheap. The Economist now publishes a “GDP-adjusted” version that controls for income levels, which usually shrinks the apparent mispricing.