Big Mac index - NZ dollar about right

By Ben Chapman-Smith

The Economist's Big Mac Index compares the price of the famous McDonald's burger in 48 countries. Photo / Martin Sykes
The Economist's Big Mac Index compares the price of the famous McDonald's burger in 48 countries. Photo / Martin Sykes

New Zealand's stubbornly high dollar is marginally undervalued against the greenback, according a global price comparison of a McDonald's Big Mac.

The Economist magazine has just released its latest Big Mac Index, which offers a light-hearted snapshot of whether currencies are sitting at their 'correct' level.

The London-based publication regularly looks at the prices of Big Macs in 48 countries and compares them with the American average, which was US$4.37 on January 31.

A Big Mac in New Zealand currently cost an average $5.20, which amounted to US$4.32 based on an exchange rate of $1 to US83.9c.

That showed the kiwi was undervalued by 1 per cent, The Economist said.

New Zealand was in the company of only three countries whose currency was 'correct' at present.

The most overvalued currency (by 107.9 per cent) was the Venezuelan bolivar, where a Big Mac costs the equivalent of US$9 in the South American country.

India's Rupee was found to be the most undervalued currency (61.8 per cent), where locals could pick up a Big Mac for US$1.67.

In China, the burger currently costs only US$2.57 at market exchange rates, meaning the Yuan was undervalued by 41.1 per cent.

A long-term view of New Zealand's position on the index showed the kiwi was at its most undervalued (42.6 per cent) in April 2001 and its most overvalued (8.5 per cent) in July 2011.

The high dollar has been a headache for New Zealand manufacturing bosses, who this week slammed the government for failing to control the high exchange rate.

Speaking at a parliamentary inquiry into manufacturing being run by Labour, the Greens and New Zealand First, a string of leaders complained that the high dollar is destroying their sector.

About 40,000 manufacturing jobs have been lost since 2008, said Bill Newson, the general secretary of the Engineering, Printing and Manufacturing Union.

"Last year the trend accelerated and we had two companies a week notifying us they needed to talk about redundancies," he told the MPs.

Industry heads said the Reserve Bank's single monetary policy goal of targeting inflation was now past its use-by date and it needed to consider the exchange rate.

Although The Economist has been running its Big Mac index since 1986, it warns the data should not be taken too seriously.

"Burgernomics" was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible."

The kiwi dollar was trading at 83.67 cents this morning.

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