The Big Mac’s price has gone up 40% – Here’s what you need to know
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Few things are as synonymous with American culture as McDonald’s iconic Big Mac burger. Invented in 1957 by one of McDonald’s first franchisees, the Big Mac remains a hugely popular fast food item.
And due to its global popularity, The Economist invented the “Big Mac index” in 1986 as a unique way to track the price of the famous sandwich against other currencies. The index incorporates the concept of purchasing power parity, which is a way of tracking the strength of an individual currency and its “purchasing power”.
So why is it important to you? Well, the price of a Big Mac has gone up 40% over the past 10 years. And because the price of a Big Mac embodies several economic factors, including the cost of labor, transportation, food, and overall inflation, some believe the sandwich is a way to understand the current inflation rates and the purchasing power of the US dollar.
Select analyzed the Big Mac Index, what it means for consumers and how you can combat the rising cost of everyday items.
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The Big Mac Index and what it means to you
The index has been studied by many people, including the St. Louis Federal Reserve. He describes “burgernomics” as “a convenient basket of goods through which the purchasing power of different currencies can be compared”. The sandwich itself contains several goods and services between the two buns, such as: food prices (obviously), labor, electricity, transportation, etc. And because the sandwich exists in so many places around the world, some see the burger as a way to gauge the purchasing power of different currencies.
While the Big Mac is a tasty sandwich, the index is not an infallible economic indicator of purchasing power parity. Diana Furchtgott-Roth, an assistant professor of economics at George Washington University, told Select it’s “junk food economics” for several reasons, because “in much of the world, Big Macs are not the cheapest foods and are not intended for the most modest residents.” And in some countries Big Macs are not available at all for cultural reasons.
Without diving deep into economic theory, the Big Mac index is remarkable because it demonstrates the staggering inflation that we are experiencing. And in some cases, the price of the sandwich is rising faster than several economic measures. The burger now costs an average of $6.05 in the United States, an increase of 40% over the past 10 years. Here’s how other economic elements and factors have fared over the past decade:
- The consumer price index increased by 22%
- The cost of living index is up 37%
- The barrel of oil is down -21%
- Raw coffee is up 12%
- US raw food price index up a modest 7%
And this trend of soaring consumer goods prices isn’t just a Big Mac trend. Other goods and services have mirrored the same trend over the past decade, including:
- Rental prices have increased by 40%
- Home prices soared 107%.
- Used car prices have increased by 39%
So what does all this data mean to you? Well it’s no surprise, life has become more and more expensive. From December 2020 to December 2021, inflation reached a staggering 7%. And last year, the Big Mac sandwich grew by the same 7%. For context, a “healthy” inflation rate is typically 2-3% year over year.
Unfortunately, we cannot do anything to control inflation. So if you’re craving a Big Mac, fries, and soda, you’ll now pay between $8 and $10, depending on where you live. However, everyone can take steps to control the impact of inflation on your portfolio.
Simple Ways to Fight Commodity Inflation
Thomas Racca, manager of Navy Federal Credit Union’s personal finance team, told Select how anyone can easily fight inflation on everyday purchases and how to stay on track to achieve bigger financial goals.
- Assess your budget. If you haven’t adjusted your budget recently, you may have noticed common expenses like fuel and groceries increase. Even if it’s only a few dollars, adjusting your budget can help you know where every dollar is going.
- Try a new budgeting technique. There are many ways to track your spending with a budget. It can be as simple as writing it all down, using an automated budgeting app, or even adjusting How? ‘Or’ What your budget can help you save during inflation.
- Redirect money for a period of time. This suggestion is a bit riskier as it can mess with your monthly budget and should be done in moderation. Racca told Select, “if you created an emergency savings fund before the pandemic, consider using some of that money for your expenses.” So for now, you can consider withdrawing money from your emergency fund or not making the same monthly contributions. It may be better to invest this money instead, in index funds for example, where you can get a better long-term return. But with rising inflation, you may unfortunately be forced to spend more on the same purchases than you normally would.
- Consider changing your shopping list. If you regularly shop at a high-end grocery store, it may be worth switching to a more budget-conscious store, or even consider buying in bulk. Also, take a look at what you normally buy and analyze what has gone up in price the most, and consider discounting those items. Notably, beef and dairy products climbed more than 13%, according to the Bureau of Labor Statistics.
At the end of the line
The Big Mac is just one sign that life is getting expensive and fast. And whether you’re shopping for the iconic sandwich, shopping for groceries, or even looking for a new home, you’ve probably had a blast with the stickers. However, there may be light at the end of the tunnel as the Federal Reserve plans to raise interest rates to stifle inflation rates that have not been seen in over 40 years.
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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.