According to the Big Mac index, the Czech koruna was undervalued against the dollar by almost 16 percent at the end of January this year. In the USA, one Big Mac cost 5.36 dollars, while in the Czech Republic it was 99 CZK, which, according to the current exchange rate of around 22 CZK/USD, corresponds to 4.5 dollars. The exchange rate should thus be around 18.50 CZK/USD. Pointing to the index data, Purple Trading analyst Petr Lajsek stated this. Last summer, according to the ranking, the Czech koruna was undervalued against the dollar by almost 23 percent, since then it started to strengthen significantly, while the dollar weakened.
According to Lajsko, the comparison is also interesting from the point of view of inflation. In the Czech Republic, Big Mac prices rose by 11.2 percent year-on-year, in the USA by 6.3 percent. Average inflation last year was 15.1 percent in the Czech Republic and 6.5 percent in the USA. Sandwiches could thus become even more expensive in the Czech Republic.
According to the analyst, the Polish zloty is undervalued against the dollar by almost 24 percent and the Hungarian forint by 30 percent. The Japanese yen is currently even more undervalued (by more than 40 percent), which is related to the still extremely loose monetary conditions in the Japanese market. Japan’s central bank is the last in the world to keep interest rates negative. However, this could change this year under the new governor of the central bank, Lajsek pointed out.
Few currencies are overvalued against the dollar according to the Big Mac Index. There are five of them, and the most overvalued is the Swiss franc, by 35 percent. Second is the Uruguayan peso (up 27 percent), followed by the currencies of Norway, Sweden and Denmark.
According to Lajsko, it is also interesting to look at the euro, which was below parity for several weeks last year, i.e. in a state where the dollar was stronger than the euro. Currently, the exchange rate is around USD 1.08 per euro, which is undervalued by 1.5 percent according to the index. Despite the further increase in interest rates in the US, Lajsek expects a slight weakening of the US dollar towards the summer, so there may be more overvalued currencies when the ranking is compiled again in July.
The Big Mac Index, named after the famous hamburger, compares the purchasing power of various world currencies. It compares how much a Big Mac costs in different countries and is meant to indicate overvaluation or undervaluation of the exchange rate. Big Mac sandwiches are available practically all over the world, so it is a good comparison of individual currencies. The index is compiled by The Economist twice a year, in January and July.
