IVW - Big Mac Vs. CPI: An Alternative View Of U.S. Inflation

2025-04-19 07:12:49 ET

Summary

• The Big Mac index reveals inflation is underestimated; Big Mac prices have risen 163% since 2000, while official inflation is only 85%.
• Technological advancements and hedonic adjustments skew inflation data, making it appear lower than it truly is, affecting economic perceptions.
• Modern inflation calculation methodologies, including substitution bias and hedonic adjustments, systematically underestimate real inflation, impacting economic growth assessments.
• Official inflation figures may distort real economic conditions, influencing investment decisions, bond yields, and perceptions of national debt and economic cycles.

Inflation and the Price of a Big Mac

As you probably know, the Big Mac index is usually used to compare purchasing power in different countries. However, I think the Big Mac index can also be applied to compare the purchasing power of Americans in different years and use it to estimate official inflation data. So, in this article, I decided to compare Big Mac prices in the US and compare them to the US inflation rate. What I am using is not really a Big Mac index in the usual sense, but will be focused exclusively on the US....

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