USDZAR misalignment based on Big Mac Index

A Big Mac is comparatively affordable in South Africa in US dollar terms. The price of a Big Mac is a popular way to estimate how much a currency is under- or over-valued relative to other currencies. Since 2012, when the ZAR began to depreciate strongly, the Big Mac Index has implied a more under-valued exchange rate (negative valuation on the right hand Y axis). That means, based only on burger prices, that the value of the ZAR was low. To account for the fact that burger prices tend to be lower in poorer countries since wages are lower, the chart also shows a GDP-adjusted valuation estimate. This would suggest the under-valuation has been about 10% less in 2023 than burger prices alone would imply.

Codera Blog Newsletter

Sign up to receive a weekly summary of our blog posts