Big Mac Index and Bogleheaders' Thoughts on it

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fwellimort
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Big Mac Index and Bogleheaders' Thoughts on it

Post by fwellimort »

First of all, I will state ahead of time that I do understand that the price of big mac is not cause of any 1 source: increase in supply/demand, etc. all play a part.

Having stated such, I think some of us can agree the big mac quality hasn't changed as much over the years: McDonald's in 2018 even officially reported that the big mac hasn't changed in size throughout the years.

What I wonder is what are Bogleheaders' opinions on Big Mac Index.
It seems many here are asking 'where was inflation the past 10 years' using examples such as electronics. Of course deflationary forces through technological innovation can play a large part along with different sector of goods experiencing different inflation: cost of higher education has gone up for instance while the cost of laptops of high quality have gone down, etc.

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Considering McDonald's is an icon of the US for many foreigners, I just want to hear people discuss about this index. If you note, the biggest price spike seems to be from post 2007/2008 just when QE really began from the financial crisis.

Do you think the CPI is an accurate measure of everyday goods inflation. Or do you think the good old Big Mac is the more reliable measure of everyday goods inflation.
And what do you think about this Big Mac Index. Just curious and want to hear the perspectives from the other members here. Thanks.
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Stinky
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Stinky »

I think that "the Big Mac index" is an excellent measure of inflation in the price of Big Macs. Nothing more. Nothing less.

I wouldn't think that the Big Mac is a better indicator of overall inflation than the CPI, since Big Macs are a tiny part of overall product sales.
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typical.investor
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by typical.investor »

fwellimort wrote: Thu Oct 15, 2020 1:12 am First of all, I will state ahead of time that I do understand that the price of big mac is not cause of any 1 source: increase in supply/demand, etc. all play a part.

Having stated such, I think some of us can agree the big mac quality hasn't changed as much over the years: McDonald's in 2018 even officially reported that the big mac hasn't changed in size throughout the years.

What I wonder is what are Bogleheaders' opinions on Big Mac Index.
It seems many here are asking 'where was inflation the past 10 years' using examples such as electronics. Of course deflationary forces through technological innovation can play a large part along with different sector of goods experiencing different inflation: cost of higher education has gone up for instance while the cost of laptops of high quality have gone down, etc.

Image


Considering McDonald's is an icon of the US for many foreigners, I just want to hear people discuss about this index. If you note, the biggest price spike seems to be from post 2007/2008 just when QE really began from the financial crisis.

Do you think the CPI is an accurate measure of everyday goods inflation. Or do you think the good old Big Mac is the more reliable measure of everyday goods inflation.
And what do you think about this Big Mac Index. Just curious and want to hear the perspectives from the other members here. Thanks.
And you expect every item to increase by exactly the same amount as the average?

What would be the theoretical reasons why some items increasing more than the average and some less means the average is invalid?

But yeah, probably many will conclude the average is invalid because we can see one item exceeds it. And that’s simply because they will believe what they want to.

Education has failed I think.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by sycamore »

I don’t eat a whole lot of fast food but I’d prefer a Burger King 3 for $3 or a Wendy’s 4 for $4 over a $5 Big Mac. So my personal rate of “burger inflation” doesn’t track this Big Mac Index.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by nisiprius »

No, I don't think that the price of a Big Mac is a better measure of my personal inflation than the Consumer Products Index.

This doesn't make any more sense than saying "What do you think of the McDonald's Stock Index? It's the total return of McDonald's Corporation. The official stock market index crashed in 2008-2009, but I personally think the official numbers (orange and blue) greatly understate the actual performance of the stock market (green)."

Image

Look, the CPI is very transparent. You can ask two questions about it.

1) Do you believe the relative importance of different categories--to you, to people in general, whatever--is wildly different from the Bureau of Labor Statistics (BLS) "basket"? For example, McDonald's is "food away from home." Do you believe that the BLS has screwed up and that most US families are spending far, far more than 6.277% of their money on "food away from home?" I can tell you that out of a wish to help local restaurants, we are getting restaurant food more often than before, and that we are currently spending about 4% of our income on "food away from home."

Source

Image

2) Do you believe that the price changes by category compiled by the BLS--that table is a short summary table, the full table is here--are wildly inaccurate?

Image

For example, they say that "limited service meals and snacks," e.g. McDonald's, had a price increase of 5.5% in one year, while the price of food at employee sites and schools went down, -3.4%. Do you have any strong reason to doubt either of these numbers?

3) I can tell you from my personal experience that this feels totally different from the late 1970s. Normally we get a very biased view because we notice the prices that have increased. But I've been retired now for over five years, and we have not noticed any big change in the relation between our expenses and our income. We don't keep careful track, but personal expenses have big fluctuations anyway. I can't tell you which is the best fit to our spending, CPI-U (the normally cited number), CPI-W (the one Social Security follows), or CPI-E (an experimental index that is supposed to track the expenses of the elderly).

During the period of double-digit inflation nothing felt stable. Everything was changing. It wasn't just "gee, look at the price of X." You got your salary raise, and for a while your household budget was OK, and then you absolutely would feel a gradual pinch from rising prices and after a year of inflation you were hurting and cutting back, and felt pretty sense at the salary review because you needed the raise.
Last edited by nisiprius on Thu Oct 15, 2020 8:43 am, edited 1 time in total.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by milkshakes »

There could be factors outside of general inflation driving up the price of the Big Mac. For instance, a shift towards “healthy” eating and a rise in fast-casual dining options could be cutting into McDonalds’ profits. Perhaps the Big Mac price has been increased to offset those losses.

However, I suspect that the price increase of food goods has outpaced the recorded CPI. Anecdotes aren’t facts, but a shopper in a grocery store walked up to me and started a conversation recently. I don’t remember the quote verbatim but the statement was something like, “these prices keep going up but I’m not making any more money.”

This struck me because I haven’t really noticed the rise in my grocery bills. But this was a random person sharing a complaint with a fellow shopper. They must really be feeling an impact.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by alex_686 »

Are you talking about The Big Mac Index?

https://www.economist.com/news/2020/07/ ... -mac-index

This does not measure inflation but rather Purchasing Power Parity, or the relatively currency strength. Designed partly to be a joke, partly as a quick and dirty substitute for the World Bank’s PPP index. In this context I do believe in the term index.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by columbia »

I've never had a Big Mac, so this index doesn't reflect my inflation rate. :)
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Jags4186 »

McDonald is to restaurants what Kohl’s is to department stores. You never pay the price on the tag. Therefore the menued price is irrelevant.

The Big Mac may “list” at $5.11 but I just bought one last week for $2.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by JoMoney »

My biggest expense is rent, second biggest would be a close call between car (including gas, insurance, maintenance) and medical insurance premiums.

If the price of rent and health insurance had followed the price of big-macs, everything else could have skyrocketed and I could still afford a far better lifestyle. Instead more money is going to rent and health insurance, and if not for the fall in prices on computers and big macs I would be living a lesser lifestyle for the $. Has my rent and health insurance (I don't actually go to the doctor) improved over time?
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Svensk Anga »

I think the acceleration in the rise of the Big Mac index post 2007/08 correlates to moves by a number of localities to jack up the minimum wage far faster than the general inflation rate. Faster rising labor costs are reflected in the price of a Big Mac.

Further, I think this reflects the general trend of goods that can be sourced from low-wage foreign labor having muted inflation rates and services that have to be sourced in the US (medical, education, housing) seeing higher inflation rates. Any consumer's perception of the general inflation rate reflects the relative contribution of these two major classes to their own personal consumption basket.

I am four years retired, own my home, am done with kids' college costs, don't eat out much, and am a very minor consumer of medical services beyond insurance premiums. I perceive very little inflation.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Onlineid3089 »

Jags4186 wrote: Thu Oct 15, 2020 7:52 am McDonald is to restaurants what Kohl’s is to department stores. You never pay the price on the tag. Therefore the menued price is irrelevant.

The Big Mac may “list” at $5.11 but I just bought one last week for $2.
I always do the survey on the receipt so I always get them buy one get one free :beer
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Watty »

alex_686 wrote: Thu Oct 15, 2020 6:56 am Are you talking about The Big Mac Index?

https://www.economist.com/news/2020/07/ ... -mac-index

This does not measure inflation but rather Purchasing Power Parity, or the relatively currency strength. Designed partly to be a joke, partly as a quick and dirty substitute for the World Bank’s PPP index. In this context I do believe in the term index.
+1

It is a fun little thing to look at but it is not meant to measure inflation.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by EddyB »

sycamore wrote: Thu Oct 15, 2020 6:24 am I don’t eat a whole lot of fast food but I’d prefer a Burger King 3 for $3 or a Wendy’s 4 for $4 over a $5 Big Mac. So my personal rate of “burger inflation” doesn’t track this Big Mac Index.
I bet it’s not just you. I have idly wondered how the mix of Big Mac buyers has changed over the decades as health information has changed, alternatives have arisen, national factors have diverged, etc., and what effect that has had on the “index.”
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by shelanman »

I think the Big Mac index is very interesting and useful -- but it also isn't magic.

Partly it's useful because a Big Mac has a variety of cost components -- real estate for the store, basic labor at the store, trucking cost for various ingredients, and the ingredients themselves are varied.

Since the cost of most foods, commercial real estate, and low-wage urban labor have all increased faster than CPI in the last 10-15 years, it's not surprising that the Big Mac has done the same.

Of course, being a single product that you can go buy also helps prevent index gaming -- there are no hedonic adjustments or substitutions in a big mac. It's just a single item at a price printed in 100pt font on menu boards in your neighborhood.

The index is most interesting, though, for it's measurement of purchasing power parity. Big Macs are radically different prices around the world despite being a very similar product everywhere, but they're a good baseline measure of the cost of basic prepared food, a very common and simple good.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by KlangFool »

OP,


I track my own annual expense every year for the past 10+ years. I know my own "personal inflation rate". I do not need an external index to tell me what my actual inflation rate is.


You could do the same.

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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by ArmchairArchitect »

Used to be fairly accurate back in the day, but in these days of "technology deflation" as an additional variable, it's not really a useful measure anymore.

It was always intended to be a "fun" measure, not anything scientific.

That being said, the CPI is garbage.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by TomatoTomahto »

When I listen to financial news, it’s Bloomberg Surveillance. Tom Keene was shocked at the price of a Big Mac at Davis: https://kwhs.wharton.upenn.edu/2015/01/ ... rom-davos/.

When I eat a fast food burger, it’s a BK Whopper (disclosure: it has been years since I’ve eaten a fast food burger).
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Xrayman69 »

When I was younger dining out was a very rare event for our family. McDonald’s was considered a restaurant. Over the years McDonald’s has become universally ubiquitous and the business model has become ingrained into the US culture of fast food “relatively” low cost access to a “restaurant” experience that modeled the aspirational desire of the growing middle class.

The Bog Mac index is tounge and cheek (hopefully not in the meat of the sandwich) but in my opinion representative of the evolution of the culture and thus the opportunity for business’ to market lifestyle inflation. As the price of the Big Mac has increased so has the apparent lifestyle inflation of the society. McDonald’s price for the Big Mac has paralleled this increase in my opinion more along lines of middle class lifestyle aspirational inflation than the CPI or inflation. Similar to what would have seemed unthinkable in the early 80’s that people would pay for bottled water or $5 for a cup of coffee.

The aspirational middle class lifestyle inflation has been a lever for price inflation related to services to a greater extent than actual goods (raw material). i.e. keeping up with the Jone’s

Similar to the dramatic increased cost of an undergraduate education in which the middle class was told “every child” should aspire to go to college (and get a degree in anything) and that this was the route to insuring a middle class aspirational dream. This opened up the opportunity for the business model to inflate pricing as there was increased demand directly resulting from “marketing”

The examples can go on and on regarding the “marketing” of the middle class dream and targeted inflation. Housing and home ownership could also be considered another example.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by alex_686 »

EddyB wrote: Thu Oct 15, 2020 9:31 am
sycamore wrote: Thu Oct 15, 2020 6:24 am I don’t eat a whole lot of fast food but I’d prefer a Burger King 3 for $3 or a Wendy’s 4 for $4 over a $5 Big Mac. So my personal rate of “burger inflation” doesn’t track this Big Mac Index.
I bet it’s not just you. I have idly wondered how the mix of Big Mac buyers has changed over the decades as health information has changed, alternatives have arisen, national factors have diverged, etc., and what effect that has had on the “index.”
I would not think so, and I think you are looking at this from the wrong view. Has the number homburgs fallen as a percentage of the consumer's basket? Sure. But it is not like there is a fixed supply of hamburgers, or even a supply of hamburgers per se. Sales at McDonalds have been decent. And if they had fallen off - so what? It is not like cows have to be ground up only for hamburgers. They can be redeployed.

The advantage of the Big Mac Index is the Big Mac hamburger itself has been consistent. The product has not changed much over the past 50 years. The production method has not changed much. It has a decent mixture of inputs - labor, land, capital. Is it crude? Yes, but the simplicity if what works in its favor.

It is not like medical costs which have seen radical changes in terms of cost, effectiveness, and value. This requires constant re-estimates to link period to period.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by gwe67 »

Big Mac is $3.89 where I live, so close to CPI. Tastes better than CPI also.

Second one is normally half price using the app.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by JackoC »

fwellimort wrote: Thu Oct 15, 2020 1:12 am First of all, I will state ahead of time that I do understand that the price of big mac is not cause of any 1 source: increase in supply/demand, etc. all play a part.

Having stated such, I think some of us can agree the big mac quality hasn't changed as much over the years: McDonald's in 2018 even officially reported that the big mac hasn't changed in size throughout the years.

What I wonder is what are Bogleheaders' opinions on Big Mac Index.
Usually I've seen 'Big Mac Index' in The Economist as a semi-serious way to measure over/under valuation of currencies, whether the price of a Big Mac in country X translates to more or less than the going price in the US in USD at the market exchange rate. Since it's basically the same thing everywhere, and a non-traded good (Big Mac's made and served with almost all local inputs).

That's something at least worth looking at, though Economist never pretends it's 100% serious measure of currency under/overvaluation and a recent article noted how trading currencies based on it would often not have worked well. OTOH comparing price of Big Mac to CPI has inherently less value. Just because a product's nature does not change doesn't mean you'd expect its price increase to fall fall right on top of CPI's increase over long periods. There's a somewhat valid idea behind transnational Big Mac price comparison to measure currency over/undervaluation, not really any with regard to change of USD Big Mac price over time to 'check up' on CPI.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Kenkat »

Onlineid3089 wrote: Thu Oct 15, 2020 9:25 am
Jags4186 wrote: Thu Oct 15, 2020 7:52 am McDonald is to restaurants what Kohl’s is to department stores. You never pay the price on the tag. Therefore the menued price is irrelevant.

The Big Mac may “list” at $5.11 but I just bought one last week for $2.
I always do the survey on the receipt so I always get them buy one get one free :beer
You can also use their app - I have an offer most of the time to buy one, get a second for $0.25.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by willthrill81 »

willthrill81 wrote: Thu Oct 08, 2020 8:22 pm It's very narrow and a bit funny, but blogger Len Penzo has been tracking the cost of sandwich ingredients in the LA area for 12 years now. It does not indicate that CPI is a gross understatement of inflation, at least when it comes to simple foods. It's actually quite surprising to see how much prices on individual items swing in price from year to year. For instance, mayonnaise dropped in price by 23% while mustard went up by 25%. The turkey and swiss cost double in 2015 what it did in 2009 but now costs less than in 2009.

Image
https://lenpenzo.com/blog/id56145-my-12 ... iches.html
When you look at Penzo's longitudinal study, you quickly see that the prices of individual ingredients can vary wildly from year to year, meaning that the price of specific sandwiches can also vary wildly. Consequently, a big problem with the Big Mac index is that it's only sampling a very small proportion of all the basic food ingredients out there.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by HenryPorter »

Is it in order to propose another index, the Starbucks one? I have noticed that the price of a cup of plain old Starbucks coffee has had a consistent price all over the contiguous USA. I have not bought one for a while, but last I remember it was approximately $2. Is the fluctuating coffee wholesale price too volatile to track a consumer price rise with?
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by willthrill81 »

HenryPorter wrote: Thu Oct 15, 2020 10:13 am Is it in order to propose another index, the Starbucks one?
I've got an idea. How about we have a group of intelligent, highly trained people track the prices of a large basket of the goods and services that consumers collectively spend most of their money on.

Oh, wait... :wink:
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by HenryPorter »

willthrill81 wrote: Thu Oct 15, 2020 10:15 am
HenryPorter wrote: Thu Oct 15, 2020 10:13 am Is it in order to propose another index, the Starbucks one?
I've got an idea. How about we have a group of intelligent, highly trained people track the prices of a large basket of the goods and services that consumers collectively spend most of their money on.

Oh, wait... :wink:

Becky Index
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by mmcmonster »

Jags4186 wrote: Thu Oct 15, 2020 7:52 am McDonald is to restaurants what Kohl’s is to department stores. You never pay the price on the tag. Therefore the menued price is irrelevant.

The Big Mac may “list” at $5.11 but I just bought one last week for $2.
Wait a minute. I know that I haven't been to a McDonalds in a while, but...

I can negotiate on the price I pay for food there? How does that even work?

I feel like a chump. I've always paid list price at McDonalds (and all other restaurants, come to think of it).
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by LittleMaggieMae »

I think the Big Mac Index is a peek at the inflation that has been occurring at restaurants of all shapes and sizes...

I tend to get a meal at White Castle. Back in 2008/2009 4 cheese burgers, fries and a beverage were about $5.00.
I stopped at White Castle last night and got the same "meal" except it cost me $8.38.

Back in the not so distant past (pre pandemic) I use to stop at McDonald's for a Bacon Egg and Cheese Bisquit and a small coffee once every two weeks... in 2008/2009 it cost less than $3.00 in 2017 it was $4.25... I switched over to an Egg McMuffin in 2019 - because my favorite bisquit and coffee was $5.50... and the McMuffin with coffee was at $4.00.

How is that not examples of "inflation".

Even my favorite slice of pizza (from a mom and pop pizza place) started to climb in price starting in 2016... I use to be able to get a slice for less than $3.00 -- the same slice is now $4.95.

I hear sit down restaurant meals have also gone up - I hear some mild complaining that now it costs $50 for a couple to go to a so-so restaurant for a burgers and beer.

I don't buy cups of coffee (other than when I use to go to mcdonalds for breakfast) so I have no idea how much that has gone up.

I'm starting to see fewer and fewer sales at the grocery which means many items are priced at their highest prices on the shelves - with no sale cycles (take soup - full price $2.95, 1st sale $2.59, 2nd sale $1.99, 3rd sale $1.50, super sale .99 rinse and repeat with the sales happening every 4 to 6 weeks in order... ) In the last 6 months the lowest I've seen soup go was $2.59... and it's Fall - now would be the sales at $1.50 or .99.

I know don't make or spend as much as many on this board... but grocery prices haven't necessarily gone up ($2.95 is still the top price for a can of soup) but most sales have gone away - which means people are paying MORE for groceries.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Flymore »

I think the Big Mac is over priced.
Just got two Woopers for $5!!! :D
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fwellimort
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by fwellimort »

mmcmonster wrote: Thu Oct 15, 2020 11:01 am Wait a minute. I know that I haven't been to a McDonalds in a while, but...

I can negotiate on the price I pay for food there? How does that even work?

I feel like a chump. I've always paid list price at McDonalds (and all other restaurants, come to think of it).
Burger Kings does the most promotions. Download the mobile apps for respective the companies you want to eat at.

Burger Kings used to do like 1 or 2 cent a burger when the app was relatively fresh (not anymore).
I would get a double stacker 2 years ago for 2 cents. And there was an event (that didn't work for me) in which if you ordered a burger near a McDonald's store, you would get a free burger.

Prices are nowhere near that low now. But yes, those promotions do exist. I guess I haven't considered those promotions as much because both Burger Kings and McDonald's had that style for as long as I grew up.
Having stated such, I don't think McDonald's really has promotions. It isn't like Burger Kings in that aspect.

Btw, Burger Kings stackers were amazing. Good stuff :sharebeer
Last edited by fwellimort on Thu Oct 15, 2020 12:25 pm, edited 1 time in total.
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Kenkat »

fwellimort wrote: Thu Oct 15, 2020 11:56 am
mmcmonster wrote: Thu Oct 15, 2020 11:01 am Wait a minute. I know that I haven't been to a McDonalds in a while, but...

I can negotiate on the price I pay for food there? How does that even work?

I feel like a chump. I've always paid list price at McDonalds (and all other restaurants, come to think of it).
Burger Kings does the most promotions. Download the mobile apps for respective the companies you want to eat at.

Burger Kings used to do like 1 or 2 cent a burger when the app was relatively fresh (not anymore).
I would get a double stacker 2 years ago for 2 cents. And there was an event (that didn't work for me) in which if you ordered a burger near a McDonald's store, you would get a free burger.

Prices are nowhere near that low now. But yes, those promotions don't exist. I guess I haven't considered those promotions as much because both Burger Kings and McDonald's had that style for as long as I grew up.
Having stated such, I don't think McDonald's really has promotions. It isn't like Burger Kings in that aspect.

Btw, Burger Kings stackers were amazing. Good stuff :sharebeer
+1

You’ve gotta use the app for Burger King and McDonalds. Right now, I am seeing for example:

BK
$3 Chicken Fries and Large Fries
$4 2 Breakfast Biscuits Meal
$4 2 Bacon Cheeseburgers Meal

McD
Buy One/Get One Bacon Egg and Cheese Biscuit
Buy One Sausage McMuffin with Egg, get one for $0.50
Buy a BigMac or Qtr Pounder with Cheese, get one for $0.25
$0.99 any size coffee
$1 Large Fries

Simple to use - at Burger King, you just give them a 4 digit code when ordering; at McDonald’s, they scan a QR code on the app.
000
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by 000 »

Ironic that Big Mac Index acronymizes to BMI.

Anyway, for all the problems CPI has, I don't think a Big Mac Index is better.
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Prokofiev
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Prokofiev »

My favorite CPI Index is the 2-liter Diet Coke index.

Back in 1974, I remember paying .99 for a 2 quart glass bottle of Diet Coke. Yes, sometimes it was on sale for .79 or .89, but the regular price
was .99 and I paid that very often.

This week, a 2-liter plastic bottle of Diet Coke cost me .99! - 46 years later.

On the other hand, the Hersey's with Almonds bar cost me .05 back in 1966.
In 1967, the price at my store went to .10 and I was horrified. 100% inflation.

Today, a smaller bar sells for .99 to 1.39 depending on where and in what volume.

As a result my candy consumption has been curtailed and my Diet-Coke intake has increased.
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Doctor Rhythm
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Doctor Rhythm »

I am not familiar with this "Big Mac Index", but there is good correlation between CPI and the price of a Royale with Cheese.
phxjcc
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by phxjcc »

OP: Thank you for posting this.

Last week DW and I had a ONE (Mr Pickle) sub sandwich, 2 iced teas, 2 bag of chips.

$26

Sandwich was $10.

Fast food has gotten ridiculous.

So, to answer the OP’s question:

If you eat fast food, then CPI does not accurately reflect your inflation.
cheezit
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by cheezit »

I propose the Costco Hot Dog Combo Index, which tracks the price of a meal consisting of a ">1/4 lb" (123g/4.34 oz) beef frank on a bun with a large soda and unlimited condiments purchased at a Costco food court:

Image





As you can see, CPI-U is clearly a fraud.
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CyclingDuo
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by CyclingDuo »

fwellimort wrote: Thu Oct 15, 2020 1:12 amFirst of all, I will state ahead of time that I do understand that the price of big mac is not cause of any 1 source: increase in supply/demand, etc. all play a part.
My PB&J costs me less than 50 cents a day - and I use fancy bread, Smucker's and some store brand crunchy peanut butter. Price hasn't changed much over the past 10 years.

:beer
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Random Musings
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by Random Musings »

I always liked the quarter pounder with cheese better at Micky D's. But I'd rather have an In-N-Out burger or one from Culver's instead.

RM
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EddyB
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by EddyB »

alex_686 wrote: Thu Oct 15, 2020 9:53 am
EddyB wrote: Thu Oct 15, 2020 9:31 am
sycamore wrote: Thu Oct 15, 2020 6:24 am I don’t eat a whole lot of fast food but I’d prefer a Burger King 3 for $3 or a Wendy’s 4 for $4 over a $5 Big Mac. So my personal rate of “burger inflation” doesn’t track this Big Mac Index.
I bet it’s not just you. I have idly wondered how the mix of Big Mac buyers has changed over the decades as health information has changed, alternatives have arisen, national factors have diverged, etc., and what effect that has had on the “index.”
I would not think so, and I think you are looking at this from the wrong view. Has the number homburgs fallen as a percentage of the consumer's basket? Sure. But it is not like there is a fixed supply of hamburgers, or even a supply of hamburgers per se. Sales at McDonalds have been decent. And if they had fallen off - so what? It is not like cows have to be ground up only for hamburgers. They can be redeployed.

The advantage of the Big Mac Index is the Big Mac hamburger itself has been consistent. The product has not changed much over the past 50 years. The production method has not changed much. It has a decent mixture of inputs - labor, land, capital. Is it crude? Yes, but the simplicity if what works in its favor.

It is not like medical costs which have seen radical changes in terms of cost, effectiveness, and value. This requires constant re-estimates to link period to period.
I’m suggesting a change in the shape of the demand curve, and changes in the relative shapes of the demand curves from country to country. and you’re saying it has no effect because we can just move down a singular, static supply curve? OK....
alex_686
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by alex_686 »

EddyB wrote: Fri Oct 16, 2020 10:19 pm I’m suggesting a change in the shape of the demand curve, and changes in the relative shapes of the demand curves from country to country. and you’re saying it has no effect because we can just move down a singular, static supply curve? OK....
Sort of. The bugger has basically remained the same. It requires about the same inputs today as it did 50 years ago in terms of land, capital, wages. etc. This is the key bit. The inputs have not changed.

I think I know where you are going but I still think you have it wrong. What you suggests holds for the short run but not the long run. If demand for burgers fell then prices should fall. We now have a surplus of McDonalds, cows, and bugger flippers. Resources will be redeployed. In the simplest scenario people's preferences change to chicken so McDonalds starts selling chicken, ranchers raise chickens instead of cows, and bugger flippers now also do nuggets. So now both supply and demand have fallen. From a price perspective you should wind up back where you started.

If you wanted something more complex we can start talking about fast casual, uber eats, and whole foods, but we would wind up back at the same place. The inputs of a Big Mac today are about the same as 50 years ago. Big Macs are not a scare resource, and both supply and demand will adjust over the long run. Ergo any increase in the buggers would have to come from price changes in the inputs. i.e., land, capital, labor. Which the Big Mac does a OK job as a proxy for the big primary inputs of the economy and inflation.

You can't say that about most other goods. One of the inputs is constrained, production methods have radically changed, or the product has changed.
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JBTX
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Re: Big Mac Index and Bogleheaders' Thoughts on it

Post by JBTX »

Who eats Big Mac? When I go to McDonald's and have a burger it is usually a quarter pounder.

And where is a Big Mac higher than $5?

You can get a mcdouble for $2 I think.

But I will say the big Mac index reflects what inflation "feels" like. It seems like prices are gradually going up, more than what CPI is reflecting.
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