The Big Mac Index in Thailand

[Guest thaiworthy]

The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America at the start of 2013 was $4.37; in China it was only $2.57 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 41% at that time.

 

Use this index by clicking on the link below to bring up an interactive graph allowing you to choose any country in the list and compare it to the current exchange rate.

 

Here is Thailand's relationship:

 

 

According to the charts, either the Big Mac is a bargain or the exchange rate is undervalued, however you want to look at it. Interesting though, unless you don't eat Big Macs.

 

Look at the demand which appears to dictate prices, such as Venezuela (@US$9.08 a burger, due to high beef imports) at the top of the index, and India, for which I presume culture plays a role, (@US$1.67 a burger) at the bottom. Here's the link. Check your own country out! Also, do you want lies with that?

 

http://www.economist.com/content/big-mac-index

[TotallyOz]

It looks to me like India is undervalued. That is NOT accurate. I could not get a good Big Mac in India. That is not a fair comparison.

 

I have used the Big Mac Escort Tip Index for years. With that, an escort in the USA often gets a 100 dollar tip. That is roughly 30 Big Macs. Do Thai escorts get the same? (Tip I am referring to and not the base pay)

[Guest fountainhall]

With an implied 'real' exchange rate of Bt. 19.92 instead of the present Bt. 29.75, a lot of retirees and those planning retirement here would be in for an enormous shock, if the index were an indication of future trends!

 

The non-surprise is that Hong Kong's currency is massively under-valued. (It has been pegged to the US$ at a rate of US$1 = HK$7.8 for around 20 years). The Big Mac Index implies it should double in value.

 

Thank goodness this chart is merely an indication and takes no account of dietary preferences!

[mahjongguy]

Geez, a Big Mac is $4.37 now?  I am really out of touch.

 

I agree that the best way to compare currencies is to explore their purchasing power but using a single western-centric product isn't going to provide the most meaningful results. Probably there is data out there somewhere that, while less amusing, compares the prices of milk, bottled water, whole fresh chicken, an hour of unskilled labor, a ton of cement, and other items that are domestically produced. The order of the chart might not end up so terribly different but I'd bet that the USD/THB rate would be closer to 25 than to 20.

 

Still, it's not a comforting thought.   

[kokopelli]

. Probably there is data out there somewhere that, while less amusing, compares the prices of milk, bottled water, whole fresh chicken, an hour of unskilled labor, a ton of cement, and other items that are domestically produced.

I believe the price of bottled beer and bottled water is a better indicator. Off hand I would say bottled water is "cheaper" in Thailand than the USA but beer is about the same price @ $1USD or about 30 TB a bottle.

[pong]

neither of the 2

BEER is most heavily taxed-but varies enormously between countries. I am right now in Penang/MY, and due to its muslim majority, alco is very heavily taxed here-much more as in TH, up to double-but the Tigers come from the very same factory. In DE and CZ its not taxed=except for VAT-and cost less as milk/per ltr.

Water is Europe is mainly a luxury item, as tapwater is very safe and anyone uses it-even to fill those mark-branded expensive EvianPerrier bottles!

What mostly influenced that BgMac index is cost of labour- now re-adjust for how many minutes one has to work for a BgMc at local minimum wage.

[Guest]

I have used the Big Mac Escort Tip Index for years. With that, an escort in the USA often gets a 100 dollar tip. That is roughly 30 Big Macs. Do Thai escorts get the same? (Tip I am referring to and not the base pay)

I've sometimes compared GDP per capita to typical escort tips. On that basis, Thai escorts are doing OK. Escorts in Britain are overvalued by this measure.

 

As another comparison, the UK Minimum wage is £6.19 an hour, so almost £50 for a days work or ~2300 baht.

In Thailand, I hear they're increasing the minimum wage to 300 baht a day. No wonder factories are getting built in the far east, not Europe.

 

As for pensions, well anyone who has control of their pension investments can gradually invest a substantial proportion of their portfolio in Asia. That reduces the currency risk.

[kokopelli]

neither of the 2

Water is Europe is mainly a luxury item, as tapwater is very safe and anyone uses it-even to fill those mark-branded expensive EvianPerrier bottles!

Wow, bottled water is a luxury item? Just how much is a 1-liter bottle of water in Europe?

 

In the USA all public water supplies are safe to drink but the quality varies a great deal. Most rural homes have wells to supply home water which also varies in taste and quality. Thus people often prefer bottled water.

[Guest abang1961]

I think we cannot compare the prices of a single item to justify its nett worth in various countries.

The standard of living in Asia varies greatly.

 

I find it cheap to have short vacations/long weekends in Thailand but not in Malaysia.

For the same budget, my Singapore dollar buys me more items in Thailand than Malaysia.

Furthermore the flight time to Bangkok takes 2 hours and to KL, well under an hour.

However to throw in the pre-flight and post-flight time requirement, they almost even out.

 

Big-Mac is not an essential food item and so the same goes to Escort services.

Both are luxury items and not your average bread and butter stuff.

There is hefty tax on liquour and tobacco in Singapore whereas it is relatively cheaper in other South-East Asian countries.

 

Most of us are happy to have the US$1 = THB 30 range.

I cannot imagine how the Thai economy is going to be affected if US$!= THB 20.

Half of the non-citizen residents (including the long-time tourists) will avoid it. But then again, how could one simply resist the wai and the smiles on those cute Thais (both boys and girls, but more on the male gender).

[Bob]

Some things are cheaper in Thailand than the west and some things aren't.  Food at a Thai restaurant is definitely cheaper, domestic airline tickets typically are cheaper, hotel rooms generally are cheaper, all foods at vegetable and fruit markets are often incredibly cheaper, etc.  On the other hand, cars cost 20-40% more here in Thailand, digital cameras are 25-50% more expensive here, and buying a Coke Zero or a Snickers candy bar in a 7-11 here is surprisingly a bit more expensive than I pay back in Michigan. 

 

Given they make many of the digital cameras and supplies here, I'm always amazed that I can buy the exact same item for less back in the states.  For example only, I looked to purchase here in Chiangmai a SD memory card and the cheapest I could find was the equivalent at the time of $22.00 (US); however, I waited until I went home a couple of months later and bought the exact same card (made by the same manufacturer) for $9.98 (US). 

[Guest abang1961]

Camera and SD  cards are NOT your usual purchase in the SE Asian marketing list.

The prices in most 7-11 and other convenient stores across Asia are almost 100% higher than what you would pay in supermarkets and mom and pop shops.  Regardless, they are still relatively inexpensive compared to the prices I pay here in Singapore.

[kokopelli]

 

 

.... all foods at vegetable and fruit markets are often incredibly cheaper, etc. 

 

Well, not all fruits and veggies are cheaper.  Bananas are cheaper in the US as are apples and pears and strawberries when in season. Meaning fruits and veggies that are produced in North America are cheaper than the same variety that may be available in Thailand. Of course items such as mangoes, papaya, etc which are grown in Thailand are cheaper. Just my non-scientific observation.

[Bob]

Bananas are cheaper in the US as are apples and pears and strawberries when in season.

 

Have to totally disagree.  Strawberries (delicious, I might add) came in season here (Chiangmai) about 2 weeks ago and they're cheaper than anything I've ever seen in the US.  As for bananas, far cheaper here.  I like the medium-sized Thai bananas and got a nice bunch (7-8 of them) at Muang Mai (the market just north of Wororat Market) and was actually a bit embarrassed to get change back from a 10-baht coin (they cost 8 baht or, in US dollars, a hair less than $0.27).  And I buy bags of Gala apples both here and back in Michigan.  They're cheaper here. 

 

As for pears, I don't know.  Never bought any here (I don't recall seeing any all that often but, then again, I don't look for them either).

[Guest]

Thailand isn't particularly cheap for mass produced electronics goods & some products like fruit juices also seem to cost more than in the UK.

Perhaps part of the issue is down to the fact we know where  to look for the cheapest electronics in our own countries and might often buy them on line. 

Then there are certain other products which are not as popular in Thailand and therefore might not have that mass market cheapness.

 

Regarding food -buying Thai food off a stall or a basic Thai restaurant in Thailand is very cheap.

Now if you want Indian food, what we find is often more of a premium priced product aimed at tourists.

Indian Food in Japan tends to be marketed as a cheap convenience food and despite the fact Tokyo is a very expensive city, a Tokyo curry could be about the same price as in Pattaya.

 

Overall though, Thailand is much cheaper than (say) Europe. Considering hotels, local food, transport & entertainment.

Most telling of all is the difference in pay rates.

 

All considered, most of "the west" is likely to continue running a trade deficit with Thailand in manufactured goods and tourism.

So over the long term,  we might expect western currencies to weaken against the baht.

 

Now what to do about it?

 

Obviously the likes of Michael, Fountainhall & Thaiworthy can possibly afford any exchange rate   .

Christian has moved to Thailand, but could in any case probably live on 100 baht a day.

I have had a long term strategy of investing in Asia, but really should be looking to complement that by actually earning more. Easier said than done.

 

[Edit: The last paragraph sort of evolved into an answer to the "how do you cope with the rise in the baht?" thread. Still the two topics overlap...]

[kokopelli]

For me, many of the food items I enjoy the most are more expensive in Thailand simply because they are imported and the price is doubled or tripled as in the case of wine.  I can't think of many items that I buy in Thailand as being cheaper than in the US although meals at restaurants are less expensive for the most part.

[Guest thaiworthy]

Obviously the likes of Michael, Fountainhall & Thaiworthy can possibly afford any exchange rate

 

Are you kidding me? Whatever gave you that impression? I am as poor as a wat rat. I have to beg for scraps from Fountainhall's table. His dog eats better than I do. And Michael has more money than God. I guess I should be flattered to be in such illustrious company.

 

Strawberries (delicious, I might add) came in season here (Chiangmai) about 2 weeks ago and they're cheaper than anything I've ever seen in the US.

 

Strawberries. Thank you for that news, Bob. Now can anyone tell me why Villa Market imports them from New Zealand/Australia instead of Chiang Mai? Bob, can you also tell me exactly what you do pay for a basket of strawberries and where? How many kg is in the basket? You see, I am a strawberry freak, and I have known about the strawberry farms near Chiang Mai, but can't figure out why they only appear to be available to the local area? I've also read online that the crop is laced with pesticide and doesn't taste very good. One forum said they could be bought at Warorot Market, in season, starting actually in December. I also read that fruits and vegetables grown in Thailand that are not native to here are of mediocre quality.

 

BTW, berries are at the top of the list among the healthiest fruits, and bananas are great, too. Bob, you must be the picture of health. I wonder if there are strawberry festivals where you can go and pick your own? Or maybe I am dreaming, but I would love to do that as an outing on my next trip to CM.

 

Strawberry fields forever . . .

[Rogie]

Why not set yourself up with a market stall in Bkk selling strawberries TW? Get Bob to buy them wholesale for you, arrange your own transport and as they are proven to be cheap and delicious just give them a healthy mark-up and watch them fly off the shelf.

[Guest thaiworthy]

Why not set yourself up with a market stall in Bkk selling strawberries TW? Get Bob to buy them wholesale for you, arrange your own transport and as they are proven to be cheap and delicious just give them a healthy mark-up and watch them fly off the shelf.

 

That wouldn't work, but thanks for the suggestion, Rogie. Bob would mark them up so high that I couldn't pass the savings on to my customers. That is, what's left of them that he hasn't already eaten on the way down here or given away to Khor Tose.

[TotallyOz]

And Michael has more money than God.

LOL I wish I had more money than someone. I stay in nice hotels by using points and negotiating long stay rates. I love a good bargain.

 

I have not really considered investing in Asia before this thread and another one on this site but it does make sense to put some money in the Asian markets before I can get a retirement visa in 5 years.

[Guest fountainhall]

There are usually Chiang Mai strawberry stalls on Silom and I'd imagine also on Sukhumvit, Don't know how much they cost, but not much. Sometimes I even see Chiang Mai strawberries in TOPS.

 

it does make sense to put some money in the Asian markets before I can get a retirement visa in 5 years.

 

Everyone is putting money into China now - even Warren Buffett. Not only does he own 10% of car maker BYD which has risen over 50% in 3 months, both he and Bill Gates get all their suits and jackets made by a tailoring company in Dalian. Haier Electronics, now the world's biggest white good company (domestic appliances etc.), is up around 35% in the same period.

 

With the Chinese economy being directed more towards increasing domestic demand to mop up some of the massive spending power now in the country, not to have some investments there is missing a great opportunity. It's easy to invest in the H-shares on the Hong Kong stock market or in the big Chinese companies listed in New York.

[Bob]

I actually don't know when the strawberry season starts around here but only noticed a fair number of strawberries around 2-3 weeks ago.  And then they seem to somewhat disappear in about a month or so.  Boy wonder even went out to a "pick-it-yourself" place a couple of Saturdays ago and brought a load of them back home.

 

TW, I'll check the price at the market next time I'm there as I'm not sure of the exact price.  I'm always amazed on how cheap fresh food and vegetables are at any of eight or so big fresh markets we have here in Chiangmai.

[Guest]

Everyone is putting money into China now - even Warren Buffett.

Actually, quite a lot of investors avoid investment in mainland Chinese companies, on the basis that the accounts tend to be a work of fiction. Hong Kong is as close as they get.

 

For anyone considering retiring in Asia, I suggest something like LSE:AAS or LSE:SST would be good in principle. Essentially, both are diversified regional trusts with an excellent track record.

Putting money in these or an equivalent should reduce your USD/EUR/GBP depreciation risk.

Warning:

As with many stocks, these have recently had a good run and there's a risk of "buying high" if you put a lump sum in now. Thailand also performed well last year. So committing to regular monthly investments might be a safer way to start. Many investors might want to look for something similar listed on another market.

[Guest fountainhall]

I am a strawberry freak, and I have known about the strawberry farms near Chiang Mai, but can't figure out why they only appear to be available to the local area?

 

Saw several hawkers today on Silom between Saladaeng and Convent selling strawberries. Price for everyone was Bt. 100 for the small bag and Bt. 200 for the larger ones. Not sure where they come from. I saw TOPS had some small punnets of fresh raspberries from Indonesia for Bt. 89. They are delicious. I have rarely seen them on display.

 

[Rogie]

 Bob would mark them up so high that I couldn't pass the savings on to my customers.

 

Re: the strawberry index

 

Those prices quoted by FH look very high to me, targeting tourists and office workers. We still don't know what they cost in a traditional market in Chiang Mai.

 

One if the tricks of the trade is always to make the product you're selling look attractive. Strawberry-sellers have it easy - a punnet of strawberries always looks a dream. And then there's cream . . .