Big Mac Index: Czech crown lacks bite against the US dollar

The Czech crown is today at its weakest point against the US dollar in over two years—a somber fact that the Big Mac Index from international media magazine The Economist highlights. Today, the crown stands at around CZK 23.9: USD 1—almost USD 3 more than just 18 months ago.

The Big Max Index shows whether currencies are weak or strong compared with the US dollar by comparing the prices of the Big Mac burger from international fast-food outlet McDonald’s in around 80 different countries. It calculates this based on the theory of purchasing power parity (PPP)—a way to compare how much the same amount of money can buy things in different countries.

According to the most recently updated version of the index, a Big Mac costs CZK 109 in Czechia and USD 5.69 (CZK 136) in the U.S. When comparing this with the current exchange rate, this means that Czechia’s currency is around 20 percent undervalued against the dollar. According to the index, USD 1 should cost less than CZK 15 in the Czech Republic. This is not the case.

What does it mean if a currency is undervalued, though? In Czechia’s case, it means that its local currency buys fewer goods or services internationally than it should based on PPP. While it may mean that goods and services may be cheaper at home, the Big Mac Index does not take into account average salaries—which in the last decade in Czechia have not kept up with inflation.

Economists caution against taking the index too literally. “Purchasing power depends on factors like production costs and wages,” Jan Vejmělek, chief economist at Komerční banka, tells Czech media outlet Hospodářské noviny. He added that the index reflects the strength of the U.S. dollar more than the health of the Czech economy. “If the exchange rate matched the Big Mac Index, most of our exporters would go bankrupt,” he added.

Unfortunately, worse times may be ahead for the crown. American President-elect Donald Trump’s upcoming tenure will, Czech economists broadly agree, weaken the crown against the dollar due to Trump’s protectionist stance, America-first approach, and the threat of tariffs on Europe.

The index shows that Switzerland is the most expensive place to buy a Big Mac, costing USD 7 (CZK 167), and Ukraine has the cheapest price at USD 1.50 (CZK 36). In the eurozone, a Big Mac costs about USD 4.2 (CZK 100) on average.