What currency index was created by The Economist to compare purchasing power?

The Big Mac Index is the currency index created by The Economist to compare purchasing power. It compares the local price of McDonald’s Big Mac hamburgers across countries and converts those prices into an implied exchange rate.

The Economist introduced the index in September 1986, with Pam Woodall associated with its creation. Its playful nickname, “burgernomics,” reflects its purpose: making purchasing power parity easier to understand through one familiar product instead of a large statistical basket.

If a Big Mac costs 5 dollars in one country and 20 units of another currency elsewhere, the implied purchasing-power exchange rate is 4 units per dollar. Comparing that implied rate with the actual market exchange rate suggests whether the second currency appears overvalued or undervalued against the dollar.

The index is an informal illustration, not a complete measure of currency value. Big Mac prices include local wages, rent, taxes, ingredients, advertising, and profit margins. Trade barriers and the fact that many services cannot be traded internationally also weaken the comparison. The Economist has published variants, including a 2004 Tall Latte Index, but the hamburger version remains the best known.