ramblings & exploration

The Price of Coffee in Venezuela

It’s all about the Benjamins! Er, uh Burgermins? What if, instead of evaluating a country’s inflation using good old fashioned economic data, an everyday consumable was used in its place? You may have heard of the Big Mac Index. If not, this indicator basically compares global prices for the McDonald’s original two all-beef patties, special sauce, lettuce, cheese, pickles, onions – on a sesame seed bun.

The Big Mac Index is proudly served by The Economist, and was created in 1986 in order to assess “whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.” Yada yada yada.

But today (well last year) Bloomberg created a similar index, except focused on Venezuela specifically. If you have a Netflix addiction akin to heroin, have abandoned cruel reality for the latest in VR or otherwise find yourself treading water in a world of ridiculous and absolutely senseless memes and are unaware, Venezuela has been experiencing what some economists are referring to as runaway inflation. Exact figures are difficult to pinpoint but most sources put the rate well into the triple digits.

So, a new Big Mac Index substitute was born: The Bloomberg Café con Leche Index. The index tracks a cup of coffee (with milk) in eastern Caracas. Bloomberg states its price has spiked to 1,800 bolivars, up from about 450 bolivars during a span of 29 weeks. This index would then peg Venezuelan inflation at a staggering rate of 1,155% during that time.

The approximation reflects wide variation and remains a “best guess”. Other estimations I’ve come across for inflation in 2016 range from here at 290% and cap here at 800%, while most mainstream financial outlets trend north of 700%.

The index is admittedly unsophisticated, but it does track a product which is consumed every day and is monitored regularly.  It’s not an attempt to liken the situation in Venezuela to a cup of coffee (or burger), but to provide a more tangible method of assessing the financial pressure that has been unfolding in Venezuela over the last few years.