The Big Mac index reflects a stronger Czech crown

The Big Mac index released last month suggests that the Czech crown was undervalued against the dollar by almost 16 percent at the end of January this year, and that the exchange rate should be 18.50 CZK/USD, Purple Trading analyst Petr Lajsek told ČTK.

This marks an improvement from the last edition of the index, published in July 2022, when the Czech crown was undervalued against the dollar by almost 23 percent. Six months later, the index reflects the significant strengthening of the Czech crown against the dollar.

The Big Mac index is a study that has been published by The Economist twice a year since 1986 that compares the prices of McDonald’s staple burger across the world, in an attempt to make economic theory more palatable. 

Its basis is the theory of purchasing-power parity, which says that exchange rates should, in the long run, “move towards the rate that would equalize the prices of an identical basket of goods and services in any two countries.”

The latest study, which was released at the end of January, listed the price of a Big Mac in the Czech Republic as CZK 95, compared to USD 5.15 (about CZK 126). The average inflation in Czechia last year stood at 15.1 percent, while in the U.S. it was 6.5 percent, which could be a harbinger of further price increases in the Czech Republic.

Inflation led the Czech branch of McDonald’s to increase its prices twice last year. The cost of a Big Mac in the Czech Republic rose to CZK 95 and now stands at CZK 99.

The Big Mac index is not the only comparison between consumer goods in various countries. The iPhone index, which compares the prices for the latest iPhone model, revealed last fall that Czech consumers will have to pay about 15 percent more than for the previous version. On the other hand, iPhone buyers in the U.S. and Canada paid the same amount, while most countries in the eurozone paid around ten percent more.