Big Mac Index Study: Argentina Has Best Purchasing Power In Latin America

According to a CNN study employing the Big Mac Index, workers in Argentina can buy a McDonald's Big Mac after just one hour of labor, compared to Mexico where 5.6 hours are required.

In what will no doubt cause a certain amount of bemusement among many Argentines who have seen the prices of their everyday groceries and utilities skyrocket since the beginning of the year, Argentina is apparently the Latin American country in which workers have the best purchasing power.

That’s according to a recent CNN Español study which used the Big Mac Index to conclude that a worker in Argentina who earns the legal minimum wage of AR $6,060 would have to work just one hour to be able to afford a McDonald’s Big Mac burger, which costs AR $33.00. In comparison, a worker in Mexico would have to register 5.6 working hours to buy the same meal.

“Following the announcement last Friday by the Argentine government that it would increase minimum wage by 33 percent, we decided to make a comparison between salaries in the whole of Latin America and the purchasing power of consumers — using the burger index,” CNN said in a statement.

On Friday, the Minimum Wage Council agreed to raise Argentina’s minimum wage by AR $2,000 over the next year, from the current AR $6,060 to AR $8,060 in January 2017. The deal followed months of negotiations and protests from union members, who were originally fighting for a 40 percent wage increase to keep in line with the country’s rising inflation, which last month hit 6.5 percent in the City of Buenos Aires and which is calculated to stand at an approximately 40 percent annual rate.

The “Big Mac Index” was formulated in 1986 by the British weekly newspaper The Economist, to act as an informal way of measuring purchasing-power parity (PPP) between two currencies. The index is based on the idea that in the long run, exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a McDonald’s Big Mac burger).

Breaking this down in McDonald’s/layman’s terms: for example, the average price of a Big Mac in the United States in January 2016 was US $4.93, however in China it was only CNY $2.68 at market exchange rates. Therefore, the index says that the yuan was undervalued by 46 percent at that time.

In its study, CNN decided to expand on this index further by combining data regarding the legal base salaries of countries across the continent with the cost of the fast food burger, after President Mauricio Macri announced last week that Argentina’s minimum wage would be increasing. The study took into account a worker who works for eight hours a day, five days a week and the month of May 2016 was used as a model, given that there are 22 working days and eight non-working days in the month this year.

And while the “Big Mac Index” is an excellent way of explaining PPP in basics, it is important to point out that the method does have its imperfections. The Big Mac’s price is decided by the McDonald’s Corporation, which can greatly affect the index and since the Big Mac itself differs across the world in size, ingredients and availability, this can also cause disparities.

It is also worth pointing out that back in 2012, the Argentine government was accused of manipulating the price of Big Macs to keep inflation looking lower. While the government of former President Cristina Fernández de Kirchner insisted that inflation was below 10 percent, the reality was actually much higher. After being called out on this by The Economist and various other publications, the Big Mac was mysteriously removed from the overhead boards in restaurants, with its “secret” new price becoming fixed at almost 30 percent lower than its comparative foods. Ah, the good old days.

Source: bubblear