Some people consider the price of a McDonald’s “Big Mac” to be a reality check for what is happening to consumer prices. Why?
- Fast food is widely consumed, outside “the one percent”. A Big Mac may be a price that real people pay often.
- The price reflects not only food costs, but also costs for hourly labor and benefits, commercial real estate, transportation, energy, manufacturing equipment and packaging.
- Until a few years ago, changes in the price of a Big Mac tracked changes in the government CPI (Consumer Price Index) fairly well.
In recent years, Big Macs have gone up rather more than the CPI. Why? Several different explanations could be put forward. The least likely explanation is that McDonald’s has suddenly become inefficient at making Big Macs.
Another possible explanation is that the government keeps toying with how it calculates CPI, looking for ways to understate consumer price inflation. That is, to hide it. Which is in the government’s direct, financial interest: that way, the government can make smaller inflation adjustments to Social Security, income tax brackets, inflation-indexed bonds, etc. Plus the political optics are better.
Courtesy of Forbes, Big Mac Index Shows Official CPI Underreports Inflation:
What is the graph saying?
- In 1996, the average Big Mac cost $2.36.
- Going by the government CPI (and assuming Big Macs are still a good reality check), the average Big Mac in 2013 should have cost $3.49.
- But it really cost $4.33, which is a lot more. (The price virtually doubled in 17 years; and of the increase, nearly half is “unexpected” by the CPI.)
- The increase started in the early Naughties, but more of it is recent, in the last six years.
So, whom do you believe? Our noble government which always looks out for you? Or your lyin’ eyes, when you go to buy a Big Mac?
I believe my eyes. I’m more likely to to hit Starbucks or In-N-Out Burger than McDonald’s; but in all 3 cases, I’m always a little shocked at how their prices have gone up from 10, 5 or even just 1-2 years ago. Poor people, who may eat at fast-food restaurants often, must really feel it.
Bonus question: Why would things have changed in the last six years? Who has been in charge of the government – that is, both the CPI calculation, and our general economic policies?
Herr Doktor Professor Krugman keeps telling us there’s no inflation, but I know for certain that my cost-of-food has gone up at-least 20-25% in the just the last few years. I keep track of my grocery-bills every-month to the penny, and I’ve gone from $325 for two people to almost $450. a-month in just the last three years. And I spend nearly an-hour every week reviewing the sale-flyers from all-three of our local supermarkets for sales and manager’s specials while working on my shopping-list for the week. I buy on-sale and in-bulk, fortunately I have two deep-freezes in the basements so I can stock-up — but lately very little is on deep-discount, especially meat and chicken.
Chicken is up. Pork is up. Where I used to find steak on-sale for $3.25/lb. it’s now $5.99/lb. A can of Campbell’s Soup is $2.19!! A loaf of ordinary bread or a pack of hot dog/hamburger rolls is $4.29. Even papergoods have gone up 15%-20%. And the store now limit many specials to two-only or four-only, where I used to be able to buy a flat-of-24 cans at the sale price.
And Dr. Krugman assures us there’s no inflation.
Ted, thanks for the comment. I appreciate the added detail!
Here in Denver metro, I follow the same path as Ted and can report similar findings. Coupons use to help but they’re mostly for processed/junk food now. Beef, poultry, eggs & cheese prices are all ridiculous. It’s also frustrating adjusting recipes because the sizes of boxed/canned foods have been reduced to mask price increases. Combined with no wage increase in 6 years and increases in all our utilities and our budget is suffocating.
Leaving out food and energy-the two areas where the poor and middle class feel inflation the most pads the inflation rate so it doesn’t look nearly as bad.
A working poor person doesn’t really care if the price of a boat or fur coat hasn’t really gone up that steeply when they’re trying to rework the budget to pay for higher food and energy costs.
Interesting timing that you posted this, ILC. Guilty Pleasure Alert: every once in a while I get a tremendous craving for a Filet-O-Fish from McDonalds, so I stopped in to get one last Friday. It was almost FIVE BUCKS! Probably won’t be doing that very often now.
Another big way they pretend it doesn’t exist is by saying newer models are better, when the older standard doesn’t exist.
Jeff did you see the Dutch took 122 tons of gold back.
http://www.lewrockwell.com/2014/11/tyler-durden/gold-repatriation-stunner/
Although all of the Ukraine’s’ 60+ tons of gold got stolen.
An ocean of funny money from the FED was laundered into the banking system both in the US and through propping up too-big-to-fail foreign banks.
The numbers had to be fiddled and so did the multitude of effects of such a downpour of funny money have to be fiddled and rigged.
There is no government calculation that is free of political manipulation.
The unemployment figures for 2008 and the unemployment figures for 2014 are arrived at by vastly different formulas, but the results are compared as if they both went through the identical calculation process.
We have inflation. We are in recession. Ask any small merchant.
bF – yes, it’s shocking.
Steve – Yes, very interesting. I wonder why the Germans only got 5 tons back? I mean, why is the Dutch gold returned ahead of the German? But, whatever. It shows that some of the trust is evaporating, between the central banks. (Which is sad, but “right” in the sense that much of the trust is probably undeserved to begin with.)
Jeff there is actually a link to the german failure. One excuse was that the german gold was the wrong shape for transport.
27 years ago this week Bill Cosby was standing angrily in front of the press demanding justice for Miss Brawley the rape victim, which turned out to be a hate crime Hoax
Oh Schadenfreude, Oh Schadenfreude,
Thy joys are so amazing
Not only do you give me cheer,
But warm my heart so cold and drear.
Oh Schadenfreude, Oh Schadenfreude,
Thy joys are so amazing
So, if the bars are at least there, they’re probably not the originals…
Chimpocolypse is on. 83 cities planed for protest the day after. NYT also published Officer Wilson’s home address listed on his marriage license.
Inflation calculations have been “adjusted” at least 20 times since 1980. Yes, it does benefit the government.
People close to the action strongly imply that the US now has control of the Ukrainian gold. No one ain’t sayin nuttin, tho…..
As a one-time McDonald’s employee, I can assure you that the cost increase for a Big Mac is most certainly not due to inefficiencies in production. When caught up in full-rush production, my crew members and I could turn out a tray of six Big Macs in about 60 seconds (exclusive of 10-1 patty cooking time).
The day McDonald’s stops becoming inefficient at production is the day they start going out of business.
I read somewhere about a month ago that the GDP calculation was refigured to include some nasty crap, but it makes the GDP numbers look spiffy! I wish I could find out again, that I has bookmarked it. Anyone know anything about this?
If you are poor, eat at home. It is much cheaper than even consuming fast food. I recall when I was scraping by in the mid 80s. I ate ALL of my meals at home or brown bagged to work. Well, others that were in my situation would get take out and whine about the cost. I would go to them and say how much my meal cost (about a third of theirs plus it was healthier). I personally didn’t feel sorry for them because they were idiotic to eat out that much.
It’s small compensation, but there’s always $2 Big Mac day (usually Tuesdays…at participating restaurants).
Remember when the former Chairman of General Electric questioned the numbers?
All sorts of dubious pressures and irregular official-leverages were applied to get him to recant.