Big Mac index

The dollars recent revival has made fewer currencies look dear against the Big Mac index,our lighthearted guide to exchange rates. The index is based on the idea of purchasing-power parity,which says currencies should trade at the rate that makes the price of goods the same in each country. So if the price of a Big Mac translated into dollars is above 3.54,its cost in America,the currency is dear; if it is below that benchmark,it is cheap. There are three noteworthy shifts since the summer. The yen,which had looked very cheap,is now close to fair value. So is the pound,which had looked dear the last time we compared burger prices in July. The euro is still overvalued on the burger gauge,but far less so than last summer.

The Economist Newspaper Limited 2008