Updated to November 2020
Originally posted March 2017
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.
Update from November 2020:
It seems Bloomberg is still tracking this and the same cup of coffee is no priced at 890,000 bolivars! 890 thousand! 12 months previous, the price was around 16,000 which implies something like a 5,000% + increase!
Also noted is the fact that in 2018, a year after I wrote this originally, Venezuela basically took an axe to their currency, and simply chopped off five zeros.
At the current exchange rate then, that cup of coffee is around $1.47. This is extraordinarily expensive, as minimum wage in Venezuela is set at $2/month and most sources I’ve seen list an average income between USD $30-100/ month. However, calculating this average wage is nearly impossible, so take that figure with a grain of salt (or 100).
If you’re making minimum wage, imagine a cup of coffee costing you up to 75% of your monthly wage. Some have outside help, perhaps a family member working abroad, sending funds back, but that’s hardly guaranteed.
It’s certainly difficult to reconcile these numbers from an outsider’s point of view.
I’ll keep updating this as things change. I’ll try to get some firsthand accounts too, in order to get a more accurate picture of the situation from inside the country.