Date
21 November 2018
McDonald's classic Big Mac is 53.8 percent cheaper in Hong Kong than in the United States, according to The Economist's latest edition of the Big Mac Index.  Photo: Bloomberg
McDonald's classic Big Mac is 53.8 percent cheaper in Hong Kong than in the United States, according to The Economist's latest edition of the Big Mac Index. Photo: Bloomberg

Why Big Mac is undervalued in Hong Kong

Local burgers are getting more expensive, although they still offer one of the cheapest meal options in pricey Hong Kong.

That’s according to The Economist’s latest edition of the Big Mac Index, which shows that the classic burger meal in Hong Kong is 53.8 percent undervalued when compared to its counterpart in the United States as of July.

The value gap is the highest since 2007, when the gap was 55 percent in July, according to The Economist data.

In January 2018, Hong Kong’s Big Mac was only 50.3 percent undervalued, and in fact, the price growth was higher than that in the US.

That’s consistent with what was happening at McDonald’s Hong Kong in January, when the new owner Citic Limited raised the price of the Big Mac by 8.6 percent to HK$19.

According to The Economist, it would take only HK$3.63 to equal the purchasing power of one US dollar, making the local currency stronger than the pegged rate of HK$7.8. This suggests that the Hong Kong dollar is still massively undervalued as it has been for years.

If the regular price of a Big Mac is US$5.51, then in Hong Kong you could get 2.2 of those burgers. Of course, burgers taste differently, depending on where and how they are prepared. As they say, you get what you pay for.

The Big Mac Index, launched in 1986, is a light-hearted guide to value different currencies based on the theory of purchasing power parity, which suggests that the price of the burger in any two countries will be equal in the long run.

Most countries, except Switzerland and Sweden, had their Big Mac priced lower than their US counterpart, with more than a third of the 57 countries in the survey, most notably Egypt, Ukraine, Russia and Malaysia, undervalued by more than 50 percent.

China, whose Big Mac is more expensive than its Hong Kong counterpart, was found 43.8 percent undervalued as of July, compared to 39.9 percent in January.

The index also indicates that Citic’s McDonald’s has been raising prices since its takeover of the local chain, although one might argue that fast-food rivals in the city, such as Café de Coral and Maxim’s, have been raising their prices more frequently and by a lot more.

That explains why there’s always a long queue at McDonald’s whenever new mobile payment apps like WeChat Pay and Alipay offer a HK$10 discount on the bill.

– Contact us at [email protected]

CG

EJ Insight writer

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