What hamburgers can tell us about the Norwegian krone
You might not think to base your financial forecasts on takeaway trends.
But The Economist's somewhat tongue in cheek "Big Mac index" has been offering investors a foreign exchange indicator, based on McDonald's famous burger of course, since 1986.
The purpose of the index is to compare the prices of the same good – the Big Mac – in different countries. It's all based on the theory of purchasing-power parity (PPP), or as The Economist puts it:
In the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.
So while Norway's krone falls to a 10 year low against the Swedish krona, the Big Mac index suggests it should fall further still.
In January 2014 the index saw Norway's krone as the most overvalued currency, with Big Macs at $7.80, an overvaluation of 68.6 per cent.
Just behind Norway are Venezuela and Switzerland, with hamburgers overpriced by 54.7 per cent and 54.5 per cent respectively. Great Britain's pound seems to be more fairly priced, with our $4.63 (£2.79) Big Macs overvalued by just 0.1 per cent.
While the data is fun, it does ignore some important factors. Labour, land, and input costs, as well as country specific taxes and regulations on the catering industry will play their part in distorting your Big Mac bill.
Hat tip to the FT's Robin Wiggesworth for the observation.