David McWilliams: There’s an economic star in the east.Ultimately, therefore, in the long term, the euro should rise against the dollar to eliminate this real underlying price difference. So if the price of a Big Mac in America was $6 and was $3 in France, the Big Mac Index would imply that the euro was 50 per cent undervalued against the dollar. This means that over the long term the exchange rate between two countries should move toward equalising the price of identical goods in two countries.įor the Economist, the Big Mac was a perfect identical product sold all over the world at McDonald’s franchises – a proxy for the real prices in each country. The economic theory behind this is called purchasing-power parity.
In a world dominated by financial markets where exchange rates can move up and down for no apparent reason, the Big Mac Index was conceived by the Economist magazine to try to assess whether exchange rates between countries were at their “correct” level. It compares prices of Guinness in Irish pubs all over the world from Tokyo to Bucharest, Lisbon to Lima. The Pint of Guinness Index is a boozy variation of the Big Mac Index. To compare prices between Ireland and the rest of Europe, I’m going to construct an Irish version of the famous Big Mac Index. In some cases the difference is enormous. In almost all cases, the price of a pint of Guinness gets cheaper when it leaves Ireland. It is a “constitutional Lidl” just up the road.īut before focusing on the bargains that are available up North, it’s worth considering just how expensive Ireland is relative to countries around the world. If sterling were to weaken against the euro next year because of a nasty shock in the negotiations, a political change in London or simply because European rates move up quicker than expected, Southerners would be mad not to think of the North.Ĭommercially, we should regard Northern Ireland as a giant discount store. In fact, Brexit may make the price differences yet more clear-cut. The difference in prices between the Republic and Northern Ireland is remarkable, particularly at Christmas when everyone is buying more of everything.Ĭhoosing to shop in the North makes you richer.īrexit will not change this. Every Christmas our family heads to Belfast to see the in-laws and eat gluttonously, drink copiously, argue endlessly and fill the boot dementedly before we head down South again.