The Economist Magazine many years ago came up with the McDonald's Big Mac Index to develop a comparative guide to the cost of living in various countries. The theory is that the cost of a Big Mac approximates the relative cost of living, because all the costs that go into making and selling a Big Mac. This takes into account the cost of the raw materials like wheat, meat, various vegetables and sauce ingredients. Also included is the cost of labour, building, land, taxes and regulations.
My interest in this was to use the same methodology but to look at the rise in price of the Big Macs over the years and compare it to the government's posted inflation rate. Many people suspect that the governments in the U.S. and Canada and elsewhere in Western countries understate the inflation rate. One reason is to have their inflation fighting efforts look more successful and secondly to reduce the amount of increase in their government pensions that are typically indexed to inflation.
U.S. CPI vs Big Mac
| YEAR | PRICE | CPI |
| 2000 | $2.51 | 3.377 |
| 2001 | $2.54 | 2.826 |
| 2002 | $2.49 | 1.586 |
| 2003 | $2.71 | 2.270 |
| 2004 | $2.90 | 2.677 |
| 2005 | $3.06 | 3.393 |
| 2006 | $3.15 | 3.226 |
| 2007 | $3.41 | 2.853 |
| 2008 | $3.57 | 3.839 |
| 2009 | $3.57 | -0.356 |
| 2010 | $3.73 | 1.640 |
| 2011 | $4.07 | 3.157 |
| 2012 | $4.33 | 2.069 |
| 2013 | $4.56 | 1.465 |
| 2014 | $4.79 | 1.622 |
| 2015 | $4.79 | 0.119 |
| 2016 | $5.04 | 1.262 |
| 2017 | $5.30 | 2.130 |
| 2018 | $5.51 | 2.443 |
| 2019 | $5.74 | 1.812 |
| 2020 | $5.71 | 1.234 |
| 2021 | $5.65 | 4.698 |
| 2022 | $5.15 | 8.000 |
| 2023 | $5.58 | |
The chart below compares the price of a Big Mac in the U.S. compared to the CPI with the Big Mac price in blue. There are two values charted for the CPI: the raw data in red and in yellow the data exponentially smoothed. It is fairly obvious that the published CPI data greatly understates inflation as indicated by the price of a Big Mac.
Canadian CPI vs Big Mac
| YEAR | PRICE USD | CPI |
| 2000 | $1.94 | 95.5 |
| 2001 | $2.13 | 98.7 |
| 2002 | $2.12 | 99.9 |
| 2003 | $2.21 | 102.5 |
| 2004 | $2.33 | 105.1 |
| 2005 | $2.63 | 106.9 |
| 2006 | $3.14 | 109.5 |
| 2007 | $3.68 | 111.9 |
| 2008 | $4.08 | 115.4 |
| 2009 | $3.35 | 115.1 |
| 2010 | $4.00 | 116.2 |
| 2011 | $5.00 | 119.8 |
| 2012 | $5.02 | 121.6 |
| 2013 | $5.26 | 123.0 |
| 2014 | $5.25 | 125.9 |
| 2015 | $4.54 | 127.2 |
| 2016 | $4.60 | 129.1 |
| 2017 | $4.66 | 130.4 |
| 2018 | $5.07 | 133.6 |
| 2019 | $5.16 | 136.3 |
| 2020 | $5.08 | 137.2 |
| 2021 | $5.31 | 141.4 |
| 2022 | $4.56 | 152.9 |
| 2023 | $5.36 | 157.2 |
Sources: www.visualcapitalist.com, fred.stlouisfed.org, www.x-rates.com and www.bankofcanada.ca (CPI)
No comments:
Post a Comment