Inflation has super-sized a Big Mac’s bite on the consumer wallet

McDonald’s Big Mac is taking an increasingly super-sized bite out of American wallets.

The Big Mac Index, a tool created by the Economist magazine to compare global prices, reports that the fast-food chain’s flagship double-decker burger cost Americans an average of $5.81 in January — well more than half the federal minimum wage of $7.25 per hour.

The National Restaurant Association said in a report last week that U.S. fast food menu prices rose year-over-year by 7.2% in March and 7.5% in February, some of their biggest jumps since the early 1980s.

The report, based on Bureau of Labor Statistics numbers, attributed the spike in menu prices to a 15.1% year-over-year increase in the cost of domestic goods and a 12.1% increase in average hourly earnings for restaurant workers.

Economists predicted Tuesday that the Big Mac will continue to rise in price this year until the Federal Reserve raises interest rates and starts selling bonds.

“It is widely known that inflation disproportionately affects Americans with lower incomes who spend a larger percentage of their wages on food and other necessities,” said Thomas Hogan, a senior fellow at the free-market American Institute for Economic Research in Massachusetts.

“The Fed reacted too slowly to rising inflation. Now American consumers are bearing the costs of higher prices,” he added.

A McDonald’s spokesperson declined on Tuesday to comment on the price increases.

Across the country, prices are higher in cities that have raised the minimum wage above the federal standard.

Last week, Axios reported that Austin, Texas, where the minimum wage is still $7.25, has one of the lowest prices for the 550-calorie Big Mac: $3.75.

The same burger in Seattle, with its $17.27 minimum wage, costs $6.39.

Experts say ongoing supply chain issues, port congestion, labor shortages, gas price increases and rising food costs have made producing a Big Mac more expensive.

Daniel Lacalle, chief economist for Alpha Strategy in Spain, said the Big Mac Index suggests year-over-year inflation in the U.S. is running closer to 10% or 11% than 8.8% for the cost of food.

“The Big Mac Index is considered one of the best indicators of the real level of inflation,” Mr. Lacalle said. “As the ingredients are the same everywhere, differences in price of a Big Mac show the real level of inflation in each nation.”

Victor Claar, an economist who teaches at Florida Gulf Coast University, said “the price of a Big Mac is rising at about the same rate as the cost of living in general.”

“But the bad news is for people who were already buying Big Macs to make ends meet at a time when prices are rising overall,” Mr. Claar said.

“Big Macs provide a lot of nutrition at a low price. If you’ve already shifted to Big Macs to save money, you’re running out of other substitutes to buy.”

The Economist chose the Big Mac, a favorite of President Bill Clinton in the 1990s, as an economic indicator because the ingredients are the same in roughly 40,000 global McDonald’s locations — making it easier to track the cost of groceries worldwide. 

Walter Kunisch, a senior commodities strategist at Hilltop Securities financial services firm in Dallas, said the Big Mac Index offers “a tidy metric that captures the price sensitivity of a wide basket of commodities that impact most Americans” — including the rising costs of the beef, wheat, vegetable oils and dairy that make up the burger.

Mr. Kunisch cited U.S. Department of Agriculture data showing that the cost of 81% lean ground beef and iceberg lettuce imported from Canada and Mexico has reached record highs.

That plus a dwindling beef cattle herd in western states suffering from droughts could impact Big Mac prices well into next year, he said.

 “We believe that shrinking cattle supplies will start to push beef prices higher in the second half of 2022 and we believe that prices could remain high for two years,” Mr. Kunisch said.