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Graphic Truth: Burgernomics and how wage growth has outpaced inflation
So you’ve heard of Bidenomics, but what about burgernomics? Allow us to introduce you to the Big Mac Index, which uses the price of a McDonald's Big Mac to assess whether currencies are over- or undervalued relative to the US dollar.
The index shows purchasing (patty) power, or the gap between productivity and living standards, between countries. It compares the local price of a Big Mac in different countries, converted to US dollars. But it's also a good measure of inflation – a hot topic for the US election, with Kamala Harris and Donald Trump both arguing that they have been better stewards of the economy. Of course, both administrations were majorly affected by COVID, which also had an impact on Big Mac prices.
Before the pandemic, you could buy a Big Mac for $4.82 – or a crisp $5 bill with change to spare, but today, you pay $5.69. This might seem like a win for Trump, but in terms of wages, the story is more complicated. In 2020, an average worker could afford about five Big Macs with an hour’s pay, but now, one hour of work could buy you 5.4 Big Macs. This reflects how, since March 2023, wage growth has outpaced inflation, with the average American’s hourly pay increasing by 5.9%, while prices have jumped just 4.1%.
A pile of money sitting on top of a table.
No rate cut for Biden or Trudeau
It looks like neither Joe Biden nor Justin Trudeau can count on lower interest rates to give them the economic or political boosts they need.
In the United States, hopes for a rate cut were dimmed when Wednesday’s consumer price index numbers dropped. The index was up 3.5% in March compared to last year, higher than February and higher than expected, which means the Federal Reserve is unlikely to cut rates in the US anytime soon.
The Bank of Canada, meanwhile, held its benchmark rate steady for the sixth straight time on Wednesday, but Bank of Canada Gov. Tiff Macklem offered room for hope. “We need to be sure this is not a temporary dip in inflation,” he said, noting that a rate cut in June is still possible.
Both Biden and Trudeau desperately want inflation to ease and for interest rates to drop – to ease cost-of-living concerns for voters.
On Tuesday, former Bank of Canada and Bank of England Gov. Mark Carney – notably considered a potential successor to Trudeau – said the era of steady low-interest rates may be over because of structural changes – namely greater volatility and the shift to a low-carbon economy.
This perspective will be a cold comfort to the Biden and Trudeau camps as they face the prospect of asking for votes while mortgage rates, grocery, and gas bills remain high.