How “The Big Mac Index” Measures Real Inflation

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The Big Mac Index may sound like some punchline for a joke. In fact, it is actually a very ingenious way of measuring Purchasing Power Parity. The Big Mac Index was developed by The Economist, the respected international affairs weekly magazine. Purchasing Power Parity (PPE) sounds complicated. It is actually the measure between two currencies and deals with exchange-rate theory. The Economist developed the Big Mac Index to make exchange-rate theory more accessible to the masses by using the Big Mac, a product that is available in practically countries.

The infographic design below is a way of further simplifying the Big Mac Index and Purchasing Power Parity. If you’ve ever wanted to learn how PPP works then this infographic will be a big help. It further simplifies how The Big Mac Index is used by The Economist and presents a clearer presentation about how a Big Mac’s price is used in illustrating the PPP.

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