Bargain Wine and the Big Mac Index

by Dave

Wine Economics:

The McWine Index

Wine prices in the U.S. appear to be heading up – what’s a bargain-seeking shopper to do? That’s the question I was asked by the wine and spirits editor of a major cooking magazine. The answer is to try to make the exchange rate work for you, not against you. The Economist magazine’s Big Mac Index can help.

The Big Mac Index, which appears in the July 26, 2008 issue of the magazine, is a simple indicator of whether a currency is over-valued or under-valued relative to the U.S. dollar based on the price of the ubiquitous fast food entrée. The Euro, for example, is estimated to be overvalued by about 50 percent. A $3.57 Big Mac costs the equivalent of $5.34 (50 percent more) when purchased at Euro-zone prices at the prevailing exchange rate.

The Big Mac index is a crude way of measuring the relative purchasing power of different currencies (to do this properly is a very complicated process), but the burgernomic indicator is generally surprisingly robust. It is pretty closely reflects the perceptions of tourists and traders and is often consistent with the more scientific results of detailed academic studies.

Where are most favorable exchange rates in the wine world for dollar
buyers? The Big Mac index points to Argentina, Chile, Uruguay
and
especially South Africa.

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