One of the greatest bits of economics popularisation is the Economist’s Big Mac Index, celebrating its 40th anniversary. It aims to teach purchasing power parity by assuming a homogeneous Big Mac globally. The theory: price in US dollars should be the same everywhere, indicating currency over‑ or undervaluation. However, the Big Mac is not the same worldwide; McDonald’s makes local adjustments to salt, calories, weight, and sourcing, such as using British and Irish beef in the UK and Ireland.

These product differences affect the index, but surprisingly little. Some overvaluation of the Euro can be explained by higher protein content of the Big Mac, while the “kashrut anomaly” makes the Israeli shekel appear overvalued per calorie. Only Mexico and Spain see the signal flip from buy to sell. The index is better behaved than small‑caged‑mammal price data, yet it should not be seen as a PPP example. It resembles a Real Effective Exchange Rate because the Big Mac is a service, not a globally traded good; labor costs and city‑centre commercial rent are key ingredients.

The index mostly reflects labor costs relative to the USA, which is why it sometimes works for exchange rates. When it diverges—like the seeming undervaluation of the South Korean won and Japanese yen—it likely signals differences in commercial rent. Daniel Davies, writing in the FT, underscores that the Big Mac Index is a different model of the forex, closer to REER, and that its usefulness lies in its reflection of local costs rather than pure PPP.