If there are significant changes in the index, and the official exchange rates are relatively stable, it is worth looking for problems in the economy itself - perhaps inflation has increased in certain market segments in the country, or there are some fundamental processes related to the price of rent, labor or burger ingredients.
What does the Big Mac index affect and how to use it in trading on the stock exchange If we are guided by the fact that the same burgers should have an equivalent price in different countries, we can determine how much, according to the theory of purchasing power parity, one or another currency is undervalued or overvalued in relation to another. When calculating, there is an assumption that any of the ingredients can be delivered to another country for free, which means their cost should be equivalent. In fact, the exchange rate of the US currency today exceeds 1.2, which suggests that Euro is seriously overvalued, judging by its purchasing power. Then the fair ratio of the exchange rates of these currencies should be 2 to 4 or 50 cents per dollar. Let's assume that in Germany Big Mac costs 2 Euros at the official exchange rate, and in the USA it costs $4. The calculation of this indicator is extremely simple. Read more: What is the Consumer Confidence Index (CCI) How the Big Mac index is calculated and how it works Thus, this index is a kind of simplified formula for calculating the ratio of the purchasing power of currencies of different countries based on one product.