On Wednesday, April 10th, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers rose 0.1% in March, and that over the last 12 months, the All Items index increased 3.5% (1).
Unpacking the CPI data shows that the index for gasoline and shelter were the largest contributors, representing half the increase.
Further, the food index at home index was unchanged, but the “food away from home” index rose 0.3% over the month (that’s more than 3.6% annually). In other words, we are still seeing some big price increases to food in general – like the Big Mac (2).
The Big Mac Index
McDonald’s Big Mac is one of the most iconic fast-food items in the world, loved for its delicious combination of juicy beef patties, special sauce, lettuce, cheese, pickles, and onions all sandwiched between two sesame seed buns. However, Big Mac fans around the U.S. and the globe shell out different amounts of money for their favorite burger, as prices have gone up everywhere – but at different rates.
The Big Mac Index, pioneered by The Economist magazine, serves as a distinctive method for assessing purchasing power parity across diverse countries and currencies. Its premise is straightforward: while the Big Mac sold at McDonald’s remains uniform globally, its price in each country mirrors local factors like ingredient costs, wages, and advertising expenses. Consequently, despite the identical product, the price of a Big Mac varies from one nation to another.
Frequently utilized for approximating the relative strength of foreign exchange rates, the Big Mac index is a reflection of a country’s inflationary pressures. To better understand global inflation, The Economist juxtaposed U.S. data from the Big Mac index with the U.S. consumer price index (CPI) for all items.
The Big Mac and the CPI
In the chart that follows, The Economist plotted biannually the price of the Big Mac and the CPI, which are normalized to 100 in January 2012. As you can see, since 2012, the indexed price of the Big Mac has been above the CPI, but the two move similarly.
However, when inflation started to take off in 2021, the price of the Big Mac did not increase as fast as the CPI.
Inflation Comparison
To see how the change in the price of the Big Mac and the change in the CPI are related, The Economist calculated recent annual inflation rates, which they call Big Mac inflation and CPI inflation, respectively. They then plotted both inflation rates biannually since 2018 in the chart below.
Inflation is Different Across States Too
The Big Mac cost only 45 cents when it first appeared in 1967. Today, it costs more than 10 times the original 45 cents in 20 states.
To determine how much customers are paying for a Big Mac across the country, CashNetUSA reviewed Big Mac prices in all 50 states. The study found that the average price of a Big Mac in the United States is a little bit over $5. However, the price varies significantly from state to state.
So where do customers pay the most and least for a Big Mac? According to the study, the most expensive state for a Big Mac is Hawaii, where customers pay an average of $5.31 per burger. On the other end of the spectrum is Mississippi, where a Big Mac will cost you $3.91 (3).
Inflation is Constantly Changing
It is worth noting that the price of a Big Mac is influenced by a variety of factors, including the cost of ingredients, rent and labor costs, and local taxes. Therefore, the price of a Big Mac can vary significantly even within a state, depending on the location of the restaurant.
While the increase in Big Mac prices may come as a disappointment to some fans, it is important to remember that prices for fast food items are always subject to change. In fact, McDonald’s has a long history of adjusting its prices to reflect changes in the economy and other factors. So while customers may have to pay a little more for their Big Macs today, the prices may come down again in the future.
The reasons for these price differences are complex and can include a variety of factors. Nevertheless, the Big Mac remains one of the most beloved fast food items in the world, and its popularity shows no signs of waning.
Let’s use this information as a wake-up call to take charge of your finances during inflation. Remember, you can control your spending habits and budget adjustments. If you need help navigating these economic shifts and ensuring your financial goals stay on track, let’s talk. Remember: A proactive approach is the tastiest recipe for financial security!
Sources:
(1) Bureau of Labor Statistics, U.S. Department of Labor. “Consumer Price Index Summary – 2024 M03 Results.” https://www.bls.gov/cpi/, 10 Apr. 2024.
(2) Consumer Price Inflation-3.2% in February. https://bankingjournal.aba.com/2024/03/consumer-price-inflation-3-2-in-february/
(3) Reyes, Ronny. “Big Mac Inflation Attack: Iconic Burger’s Price Soars.” New York Post, 19 Mar. 2023, https://nypost.com/2023/03/19/big-mac-inflation-attack-iconic-burgers-price-soars/
This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues.
