'Big Macenomics' are good news for Ireland
on 07/02/2013 00:00:00
This was more than four times the drop in price of the same product in similarly stricken countries such as Greece, Spain, and Portugal.
However, the fact that the price did go down in these countries is a clear indication that nations are adjusting their budgets in times of crisis, according to economist Dr Guntram Wolff, who studied the figures produced by The Economist.
"Adjustment seems to be working, not just for unit labour costs but even for real prices," he said in an analysis of Big Mac economics. And this is good news for recovery, he believes.
Ireland was the most expensive place to eat a Big Mac in Jul 2011, but it is now lying eighth, with Italy taking its place at the top, where a Big Mac will cost you €3.85.
Mr Wolff, who works with the well-respected Brussels based economics think-tank Bruegel, goes on to look at the cost of the burger in relation to other countries, and Germany in particular.
There, too, Big Mac economics proves to be right.
"The Big Mac tells us that Italy is the most expensive place in the euro area. A Big Mac costs €3.85, while it costs only €3.60 in France and €3.64 in Germany. Or to put it in percentages, in Jul 2011, Italy was overvalued by 2.9% while in January 2013, it was overvalued by 5.7% relative to Germany."
The adjustment in price in Ireland and the other countries - with the exception of Italy - reflects the growing competitiveness of an economy, said Dr Wolff.
He said that while countries such as Ireland are going in the right direction, Italy needs to be careful.
"Many may argue that the Big Mac is a very special kind of food in the land of pasta and Chianti."
The price of the Big Mac is a warning, a sign of things going in the wrong direction in Italy, said Dr Wolff. Inflation has hit the country, increasing prices generally by almost 5% compared to an average of less than 3% in the eurozone.
"Labour market reforms that do not translate into lower product market prices are detrimental to consumers and prevent the economy from gaining export strength. Italy needs to apply the right policies to address high inflation."
The figures for the eurozone, as produced by The Economist, states that the average price of a Big Mac in the 17 countries is €3.59 - and this suggests the euro is overvalued by 11.7% compared to the dollar.
Meanwhile, Dublin is becoming a cheaper place to live.
It was ranked the 16th most expensive city in the world to live at the height of the boon in 2006 and is now the 34th.
The ranking was given in the Economist Intelligence Unit's Worldwide Cost of Living Survey that looked at 131 cities, using New York as a benchmark.
Dublin Chamber of Commerce said the city's latest ranking would show it was regaining its competitiveness and that would attract more multinationals and tourists.
The survey, which compared over 400 prices across 160 products and services, shows that London has moved up one place in the last 12 months to 16th.
Tokyo regained the title of the world's most expensive city, a ranking the Japanese city first received in 1992, while the Iranian city of Tehran emerged as the least expensive of the 131 cities.