The Data

For today’s challenge, I’ll be working with the Consumer Price Index and the Wage Price Index, courtesy of the ABS. As you might have already connected the dots, we’re going find out if our wages are growing anywhere near the rate of consumer prices, i.e. inflation. To make this exploration a bit more palatable, let’s introduce the metric that I will be using today: Burgers Per Hour.

Maybe you have already heard of the Big Mac Index, but for the uninitiated, it is just a humourous way of exploring the purchasing power parity between two currencies. Ideally, the price of a Big Mac should be the same in both countries after the currency conversion rate has been applied, indicating that both currencies likely have equal purchasing power. While PPP is a wholly fascinating area to explore, what I am really looking for is the historical prices of Big Macs in The Economist’s Big Mac Index data.

Presenting the Burgers Per Hour index: we want to know how many Big Macs an average person can buy using their hourly wage, and we want to know how much that has changed over the years. By using Big Mac price changes as an indicator of inflation, BPH demonstrates how well our wages, and by extension our purchasing power, is keeping up with the times.

Ripping off the Band-aid

 

Simply put, Big Mac prices have been outpacing wage growth in Australia. Big Mac prices have risen by roughly 150% since July 2000, while average wages have have only increased by over 90%.

 

Looking at our burgers per hour (BPH) index, we can see the impact of the dot-com bubble burst in the 2000s, and the steady recovery from a low of 24.5 BPH to a peak of 28.5 BPH by the end of 2008. Wages from both the private and public sector are pretty much neck to neck, with the public sector generally outperforming the BPH of the private sector.

Then comes the GFC of 2008, where BPH falls to an initial new low of 23.1. From that point onwards, BPH is basically on a steady decline, hitting a new low of 20.3 BPH in 2020.

But, if it’s any consolation, BPH looks to be improving over the past year. And it looks like Melbourne’s been doing better than the national average.

Consumer Price Index

Are Big Mac prices are actually good indicators of inflation? To answer this question, we can look at how its prices changes over the years line up against the price changes of Take Away and Fast Food.

Realistically, it’s hard to draw any conclusions at all from the trends alone. It is mildly amusing to think that maybe burgers per hour could be a relevant indicator of wage growth. Sadly, at the moment, it only serves to illustrate the increasing difficulty of sustaining a Big Mac addiction at rate wages are currently growing.

The Data School
Author: The Data School