Big Mac Index Isn’t PPP: It Reflects Labor Costs More Than Currency Fairness
The FT Alphaville piece argues the famous Big Mac Index does not measure purchasing-power parity in any strict sense because McDonald’s menus and ingredients vary across countries. Instead, the index behaves more like a Real Effective Exchange Rate proxy driven by labor costs (and related factors like city rents) in services, offering a rough guide to currency movements rather than a precise forex indicator. Differences in beef, calories, and local sourcing mean signals only flip in some cases (notably Mexico and Spain), so the Big Mac should be used as a macro think-piece, not a trading tool.