Business

Whopper suggests Jamaican dollar is undervalued against ... but overvalued against many others

BY RICHARD BROWNE
Business editor
browner@jamaicaobserver.com

Sunday, March 17, 2019

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JAMAICA no longer has a McDonald's fast food restaurant, so it is not included in The Economist newspaper's Big Mac Index. It is one of the few places that doesn't have a restaurant from that American chain, and the Big Mac is sold in some 120 countries.

But if the similar Burger King Whopper is used as an alternative, it suggests that the Jamaican dollar — like most world currencies — is trading at an undervalued level when compared to the US dollar, but is overvalued compared to many other world currencies.

In Jamaica a Whopper hamburger (not the combo) sells at Burger King for $560 or a price of about US$4.45.

Meanwhile, according to the most recent Big Mac Index — published in January 2019 — McDonald's signature burger in the United States costs US$5.58.

Both the Big Mac and the Whopper are similar, as they both contain beef, lettuce and a slice of processed cheese inside a bread bun, served in an American chain restaurant.

Only three countries on the Big Mac Index were shown to have currencies that were stronger than the US dollar – Sweden, where a Big Mac costs US$5.84, Norway where it costs US$5.86, and Switzerland, the most expensive, where a Big Mac costs US$6.62.

The Big Mac Index uses the theory of Purchasing Power Parity, which suggests that a basket of goods (in this case a Big Mac burger) should cost the same across borders, and only differ if the exchange rates between currencies are not properly balanced.

But compared to other countries on the Big Mac Index, although undervalued, the Jamaican dollar is not grossly undervalued. A Whopper at US$4.45 compares to a Big Mac in Australia at US$4.35 or in Brazil at US$4.55. Many countries have prices that are far lower, including Singapore at US$4.28, Britain at US$4.07, Japan at US$3.60, China at US$3.05, India at US$2.55, South Africa at US$2.24 and Russia at the bottom at US$1.64.


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