Big Mac Index: Zloty is 30% undervalued.

Według Big Macka index the current exchange rate of the Polish currency is undervalued by 30 percent. This undervaluation would have been greater if the price of a sandwich in Poland had not increased by a record 18 percent in the last six months.

PLN too weak, CHF too strong

Published by The Economist since 1986 Big Macka Index is a very useful tool for assessing the strength or weakness of a particular currency. It compares the prices of the unified Big Mac sandwich by country. According to the Law of One Price, in the long term, exchange rates should be such that the price of the same good does not differ from each other in different currencies. The current edition of the indicator clearly shows the strength of the American dollar, only 4 currencies are stronger than it (Swiss franc, Norwegian and Swedish kroner and Canadian dollar).

The most overvalued currency globally is the Swiss franc, while the Big Mac sandwich bought in Switzerland is converted into dollars by 30%. more expensive than in the USA. Strong risk aversion in recent years has significantly increased the value of the Swiss currency, as witnessed by the steaks of thousands of Poles repaying their housing loans in Swiss francs every month.

According to the index, the Polish zloty is 30 percent. undervalued against the dollar. This is not a surprise, the zloty has remained weak for a long time. The reason for this is the outflow of capital from more risky markets to the safe ones, as well as concerns about the condition of our budget and economy.

The Czech koruna (23 per cent) is less undervalued in the region and the Hungarian forint (49 per cent) is more undervalued. The most undervalued globally (of the recognized economies) is the Romanian leu, while Romania's Big Mac is 56 per cent in dollar terms. cheaper than in the USA.

BigMac went up the most… in Poland

The index, updated every 6 months, is also a measure inflationas it shows how the prices of sandwiches in local currency are changing. It turns out that the Polish Big Mac has increased in price the most in the world in the last 6 months. The price of a Polish sandwich increased by 18%, while in the Czech Republic it increased by 14%. On the other extreme, the price of a sandwich in China has fallen by 2%.

After the release of data on falling inflation in the US (from 9,1 to 8,5%) on Wednesday, the zloty appreciated against the dollar. It seems, however, that in the near future, due to local factors, as well as due to the increasingly likely end of a series of rate hikes in Poland, our currency will remain weak in the medium term.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.