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Did McDonald’s just reveal the real inflation rate?

Did McDonald’s just reveal the real inflation rate?

Since 1986, ‘The Economist’ has been publishing its ‘Big Mac index’ as an alternative, playful way of gauging purchasing power parity (PPP) between countries and evaluating how and if the differing exchange rates impact princess across nations and currency zones.

While the famed index deals primarily with forex, the McDonald’s (NYSE: MCD) fast food chain may have, by late may 2024, started offering a glimpse into another vital statistic – the actual multi-year inflation rate

The official estimates for the U.S. inflation rate – easiest to check using the inflation calculator provided by the Bureau of Labor Statistics (BLS) – claims that the purchasing power of the American dollar has dropped approximately 25% since 2019.

McDonald’s fights accusations of jacking prices 100%, admits only a 40% increase

The menu at the popular fast food chain, however, paints a somewhat darker picture as the prices have, on average, risen 40% in the last five years, according to Joe Erlinger, president of McDonald’s USA.

MCDonald’s fact sheet about pricing at its restaurants. Source: McDonald’s

While such a figure might immediately lead to the conclusion that the actual inflation rate – at least pertaining to food prices – actually stands at about 40% across 5 years, it is worth noting that there are significant discrepancies between individual menu items.

Additionally, certain price changes can be explained by the wild swings soft commodity markets have been experiencing – initially seen in the surge of cocoa prices – and a historical tendency of corporations to use high inflation environments to increase prices ever so slightly more than could be justified should not be ruled out either.

Whatever the case, it is evident that consumers have taken fast food prices as a sign of the times, given that, across social media, posts comparing the initial advertised prices of various meals – frequently measured in cents – from just a few years prior to their current costs – frequently in the $5 zone – have become ever more common.

The inflation and interest rate confusion

Whatever the actual case with the prices at McDonald’s and other fast food chains – and whatever their actual relation with the loss of purchasing power of the American currency – the fact remains that recent months have featured significant confusion when it comes to inflation and interest rates.

Indeed, investors and institutions have changed their outlook about possible funds rates cuts multiple times in the last 6 months, and, at press time, the arguments made about the state of the U.S. economy range between that is the strongest it has been in a long time and that a massive collapse – akin to either the Great Depression or the Great Recession – is imminent.

The FED has also done little to help with the confusion as, while many have interpreted Jerome Powell’s recent statements as a sign that interest rates will, at worst, remain stable for a time, Neel Kashkari recently stated that hikes should not be ruled out.

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