This is what a Big Mac cost a decade ago – and it’s a depressing reminder of how far the rand has fallen

Business Insider SA

Dec 30, 2019, 06:01 PM

Big Mac. (McDonald's)

These days, a Big Mac hamburger costs 73% more than it did a decade ago: R31 versus R17,95.
According to the Economist's Big Mac Index, the rand is also now undervalued by 62%.
Ten years ago, the rand was trading around R8/$: it's now sitting at R14.
But at least it's some way off its decade low, reached at the height of Nenegate.
For more, go to Business Insider SA.

McDonald's opened its first restaurant in South Africa almost 24 years ago, in November 1995.

At launch, a Big Mac meal cost R19,95 - compared to R39.90 (if it's a sugar-free Coke - a with-sugar option will cost around R2 more).

A Big Mac burger was sold for around R7 when McDonald's first opened, and a decade ago, it cost you R17.95, according to data collected by the Economist.

These days, a Big Mac will cost you 73% more: R31.

The price of the burger kept up almost exactly with the average rate of inflation over the past ten years (5.7%). In other words, if the price of a Big Mac was increased at exactly the same rate of inflation, it would have been priced at R31.20.

But the price of a Big Mac tells you much more than what inflation is doing, if the Economist is to be believed.

Since 1986, the publication has been using Big Mac prices to determine whether currencies are overvalued, or too cheap.

The Big Mac Index is based on the theory of purchasing-power parity. It says that in the long run, exchange rates ought to adjust so that an identical product should cost the same across countries.

In July this year, the index found that a Big Mac cost around $2.19 in South Africa, compared to $5.74 in the US. This means the rand is undervalued by 62%. Only Malaysia (-63%) and Russia (-65%) saw a larger discount.

READ: Big Mac Index: Rand should be trading at R5.63/$

A decade ago, the rand was trading at R8.28 to the dollar and the Big Mac index found that it was “only” undervalued by 39% against the dollar.

Although the rand has seen a strong rally in December to break through R14/$ as foreign investors sought the high local interest rates on offer, it is still far removed from where it started the decade: R7.47/$.

But there is some consolation. The rand remains around 15% stronger than the level of R16.47 it reached during Nenegate four years ago, when former president Jacob Zuma fired then finance minister Nhlanhla Nene.