The Economist’s Big Mac Index is based on the theory of purchasing power parity (PPP), which states that in the long run, the exchange rates of any two economies should move towards the rate that would equalize the prices of an identical basket of goods. Using this approach for a Big Mac, one can estimate how much one currency is undervalued or overvalued relative to another. As of July 2023, a Big Mac costs $5.58 in the US compared with P155 in the Philippines, implying an exchange rate of P27.78 versus the dollar. Compared with the actual exchange rate of P54.92, this means that the peso is 49.4% undervalued.
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