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Want a Big Mac in Norway? Prepare to pay world’s second-highest price

Norway has the second most overvalued currency in the world according to The Economist’s Big Mac Index 2017, which puts the Nordic country behind only Switzerland.

Published: 17 January 2017 12:35 CET

Want a Big Mac in Norway? Prepare to pay world's second-highest price

A Big Mac in Norway will set you back 49 kroner, or $5.67. Photo: rob_rob2001/Flickr

Invented in 1986 as a light-hearted guide to purchasing power parity, the Big Mac Index compares the cost of a McDonald’s Big Mac burger in countries across the world.

Using the US dollar as the base rate, the 2017 Index showed a Big Mac in Norway to cost $5.67 (49 kroner) compared with $5.06 in the US, meaning the krone is overvalued by 12 percent.

The exchange rate that would equalize the price of a burger in the two countries is 9.68 kroner to the dollar, while the actual exchange rate is 8.65 kroner.

Norway was surpassed only by Switzerland, where a Big Mac costs $6.35 and the Swiss franc is overvalued by 25.5 percent.

Sweden, Venezuela and Brazil were the only other countries to have pricier burgers than the States.

According to this ‘burgernomics’, the euro and the pound are undervalued by 19.7 percent and 26.3 percent respectively, said The Economist.

However, the situation is different in an adjusted version of the index which takes into account labour costs and GDP.

When adjusting for Norway’s average income, the kroner is actually undervalued by 3.3 percent, The Economist found.

Brazil topped the adjusted index, which showed the Brazilian real to be 66 percent overvalued.

“This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower,” said the Index authors.

“The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.”

Although Switzerland has topped the raw index for a few years running, Norway had the world’s most expensive Big Macs as recently as 2014.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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