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Emerging Markets: Brazil’s Big Mac

by Elaine Schwartz    •    Jul 2, 2013    •    356 Views

The price of a Big Mac can explain some of Brazil’s problems.

But first, I wanted to share some insight about Brazil from financial writer James Surowiecki. In emerging markets like Brazil’s, the problems start when GDP rises, people earn more and they expect more. However, the country’s public safety, transportation, health care and education infrastructures lag behind. Consequently, you have a growing gap between the new middle class’s expectations and what they actually get from government. It makes sense that just one event, a bus fare increase by only 20 centavos–9 cents–ignited a fire storm of protest.

Next, illustrated by Big Macs, we can add high prices to middle class dissatisfaction. According to The Economist’s Big Mac Index, at $5.64, Brazilians pay a lot for a McDonald’s hamburger. The average Big Mac in the US is $4.37.

The Big Mac Index places Brazil close to the top for expensive Big Macs. From The Economist.

The numbers at the top indicate the percent by which a Big Mac is overvalued. The bottom half of the chart is not shown. From The Economist.

Then, comparing the price of a Big Mac to GDP per person, Brazil’s Big Mac seems even more expensive. While Brazil’s per person GDP is $12,789 and her Big Mac is $5.64, in Australia, per person GDP is $66,371 and a Big Mac, $4.90 and for Chile, $14,403 and $4.35.

The numbers at the top indicated the percent by which the big Mac is overvalued compared to a US Big Mac. From the Economist

Using GDP per person, the numbers at the top indicate the percent by which the Big Mac is overvalued compared to a US Big Mac. The bottom half of the chart is not shown. From the Economist.

Sources and resources: James Surowiecki’s excellent column (ungated) in the July 8 New Yorker provides wisdom about Brazil’s plight as she prepares for the World Cup and the Olympics. Then, I just checked The Economist for the most recent Big Mac Index.

 

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