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The Big Mac's price is up 40%, and it isn’t a good sign
This famous American burger price is outpacing cost of living, and it's not a good sign.
There are few things that are as synonymous with American culture as the iconic Big Mac burger from McDonald's. Invented in 1957 by an early McDonald's franchisee, the Big Mac remains a very popular fast-food item.
And because of 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 the way to track the strength of an individual currency, and what 'purchasing power' it has.
So why does this matter to you? Well the price of a Big Mac has risen a staggering 40% over the last 10 years. And because the price of a Big Mac embodies multiple economic factors including the cost of labor, transportation, food and overall inflation — it leads some to believe the sandwich is one way to understand current inflation rates and purchasing power of the U.S. dollar.
Select analyzed the Big Mac index, what it means for consumers and how you can fight back against the rising costs of everyday items.
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The Big Mac index, and what it means for you
The index has been studied by many, including the St. Louis Federal Reserve. It describes the 'burgernomics' as "a convenient market 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, power, transportation and more. And because the sandwich exists in so many places around the world, some look at the burger as a way to gauge purchasing power of different currencies.
While the Big Mac is a tasty sandwich, the index is not a foolproof economic indicator of purchasing-power parity. Diana Furchtgott-Roth, adjunct professor of Economics at George Washington University told Select it's "junk food economics" for several reasons, because "in a lot of the world Big Macs are not the cheapest food and not aimed at lowest-income residents." And in some countries, Big Macs are not available at all due to cultural reasons.
Without diving deep into economic theory, the Big Mac index is noteworthy as it demonstrates the staggering inflation we're experiencing. And in some cases, the sandwich is rising in price faster than several economic measurements. The burger now costs an average of $6.05 in the U.S., a 40% increase over the last 10 years. Here's how other items and economic factors have fared during the last decade:
- The Consumer Price Index has gone up 22%
- The cost of living index is up 37%
- A barrel of oil is down -21%
- Raw coffee is up 12%
- The U.S. raw food price index is up a modest 7%
And this trend of consumer goods skyrocketing in price is not only a Big Mac trend. Other goods and services have mirrored the same trend over the last decade, including:
- Rent prices are up 40%
- Home prices have soared 107%.
- Used car prices are up 39%
So what does all of this data mean to you? Well it's no surprise, life has become increasingly expensive. From Dec. 2020 to Dec. 2021, inflation was at a staggering 7%. And in the last year, the Big Mac sandwich is up an identical 7%. For context, a 'healthy' rate of inflation is generally 2-3% year-over-year.
Unfortunately, there's nothing we can do to control inflation. So if you're craving a Big Mac, fries and soda, you'll now be paying between $8-10, depending on where you live. However, there are steps everyone can take to control how inflation impacts your wallet.
Simple ways you can battle inflation of goods
Thomas Racca, manager on the Personal Finance Team at Navy Federal Credit Union told Select a few ways on how everyone can easily fight against inflation on daily purchases, and how to stay on track to accomplish larger financial goals.
- Evaluate your budget. If you haven't adjusted your budget recently, you may have noticed common expenses like fuel and groceries going up. Even if it's only by a few dollars, adjusting your budget can help you keep track where each dollar is going.
- Try a new budgeting technique. There are ample ways to track your spending with a budget. It could be as simple as writing everything down, using an automated budgeting app, or even adjusting how you budget can help you save during inflation.
- Reroute some money for a period of time. This suggestion is a bit more risky as it can throw off 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 towards your expenses." So for the time being, you may consider taking some money out of 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 may get a better return over the long run. But with rising inflation, you may be pressed to unfortunately spend more on the same purchases you'd normally make.
- Consider changing your grocery list. If you regularly shop at a higher-end grocery store, it may be helpful to transition to a more budget-conscious store, or even consider buying in bulk. Additionally, take a look at what you buy normally and analyze what has risen in price the most, and consider cutting back on those items. Notably, beef and dairy products have soared by over 13%, according to the Bureau of Labor Statistics.
The Big Mac is just one sign among many that life is getting expensive, fast. And whether you're buying the iconic sandwich, grocery shopping or even looking for a new home, you've likely had some sticker shock. However, there may be light at the end of the tunnel as the Federal Reserve is planning on raising interest rates to quell inflation rates that haven't been seen in over 40 years.
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