"Big Mac Index" or "Borscht Index"? The expert explained whether the "indices" reflect the real state of the Ukrainian economy
Kyiv • UNN
Economist Ihor Garbaruk believes that the Big Mac Index is not indicative of Ukraine. He suggests focusing on the Borsch Index, which better reflects the purchasing power of Ukrainians and the economic situation in the country.
The Economist recently calculated that according to the "Big Mac Index," the estimated exchange rate in Ukraine is 20.74 hryvnia to 1 dollar, which means that the Ukrainian hryvnia is undervalued by 49.5%." But is it worth focusing on such an indicator?" UNN asked the economist.
The Economist, which maintains the so-called "Big Mac Index," calculates that a Big Mac burger sold at McDonald's in Ukraine costs 118 hryvnias, while in the United States it costs 5.69 dollars.
"According to the Big Mac Index, the estimated exchange rate is 20.74 hryvnia to 1 dollar. The difference between this and the actual exchange rate of 41.05 indicates an undervaluation of the Ukrainian hryvnia by 49.5%," the publication said.
At the same time, expert Ihor Garbaruk noted that he would not be tied to such theoretical things as the Big Mac Index. According to him, Ukrainians and the government should monitor how much a borsch set of products costs for Ukrainians in Ukraine, whether Ukrainians have the means to buy this set, and provide their families with quality products from which to cook food at an affordable price.
"This is what society and the Government of Ukraine should focus on. We have to think about how Ukrainian business should work to provide jobs that provide wages, which will provide taxes," says Garbaruk.
He said that according to the data declared by the Ukragropromproductivity Research Institute in July, the borsch index was estimated to be about 120 hryvnias for 3 liters. That is, about 30 hryvnias per liter.
"And what did they say? That in July it was 10% cheaper than it was in June. Accordingly, in June it was more expensive. About 33 hryvnias. If we take a comparison for statistics, then, for example, at the end of April, it was at the level of 29 hryvnias. We see that 30 hryvnias in July, 33 hryvnias in June, 29 hryvnias in April - it moves within this inflationary margin of error, depending on how inflation works. But why the index of borscht, for example, is interesting is that it is not tied to some phantom unit called Big Mac, but it is tied to the set of products that grows in Ukraine and it more realistically corresponds to the positions that exist," Garbaruk adds.
He cites the example that, as noted above, The Economist estimated that the Ukrainian currency is undervalued by 49%, "so McDonald's would probably like to sell its burger not for 118 hryvnias, but exactly twice as much, but it is well aware that there is a so-called purchasing power parity and no matter how much it wants to, it would not sell for this amount and, accordingly, it is tied to the market that exists and sells at the price that is possible today.
"We are well aware that the US has much higher wages, while Ukraine has lower wages, so the fixed costs in the US will be much higher, while in Ukraine they will be lower, and therefore Ukraine can charge a lower price," the expert says.
At the same time, the expert emphasized that it should be understood that the Borsch Set Index is heavily influenced by the seasonality factor, so it is impossible to make predictions about how much the Borsch Set Index will be in a few months.
"We understand perfectly well that if we have a lot of produce, we need to sell it. This is an absolutely normal situation. The heat has an impact because refrigeration units do not work, there is no normal air conditioning, and accordingly, products are lost, and if products are lost, manufacturers put it into the cost of the next product. The more negative factors there are, the more expensive the products will be. In fact, all of these factors will affect business, negatively affect prices, and negatively affect the companies themselves. I propose that both society and the government should work to make life easier for Ukrainian citizens today. And again, to gradually look at the issue called pricing for a socially important group of goods," summarized Garbaruk.
Recall
The NBU predictsthat inflation will accelerate, as evidenced by preliminary estimates of inflation in July, but will start to decline next year.
