Using Burgers to Measure the Economy

I was perusing through the website for one of my favorite periodicals, The Economist, and came across a most curious article. Now, this was not your ordinary article, it was one that defined an index that the world renowned magazine used to gage inflation and monitor the economy.

Just to provide some background before I go any further let’s define two key terms as such:

Inflation—the rise in price of goods and services

Consumer Price Index—the measure of the average price of a basket of goods and services as compared to a base year (i.e. the price of groceries in 1992 versus how much it would cost today)

By having defined inflation and the CPI, let us also recognize the fact that the CPI is used to gage inflation.

The way The Economist measured the change in inflation and the CPI was by creating an index or basket of good and services of one simple good and tracked its change in price over a specific period of time. In this case, this good was the Big Mac. That’s right, our friends over in Britain, at The Economist, thought that the change in price of the famed McDonald’s hamburger was a good enough indicator of the change in our world economy by using it a measure of the change in the purchasing power parity between two currencies. In addition, the appropriately named this index “The Big Mac Index” and it has been in inception since September of 1986.

So, the next time you eat a Big Mac, be proud that you are not only eating big juicy sandwich high in saturated fat and calories; but, you are also eating a piece of the economy and a “major” economic indicator.