Cost comparison: Oil vs. Big Macs

The price of oil has moved so far in this century that it's changed some of our most basic relationships. Like the relationship of energy to food. And maybe not for the better.

By Charley Blaine Mar 30, 2010 9:30PM
Hamburger © BananaStock / Jupiter ImagesWhen it comes to the price of oil these days, it's easy to say, "Well, it's $82 a barrel now, and a gallon of gas will run me well, $2.80 or so a gallon."

And that means . . . ? How about this: The price of a barrel of crude oil is now the equivalent of 20 Big Macs from McDonald's (MCD).
That's up from 10 Big Macs at the beginning of the 21st century, according to Gregor Macdonald, an energy analyst who writes a blog on energy prices.

Macdonald worked out the relationship to understand the effect rising energy prices have had -- and may have -- on how we live our lives. The short answer is a lot. The longer answer is that oil is now more important to us than food. And people will adjust their spending accordingly.

He cheerfully admits that the idea came from The Economist magazine, which has charted the price of a Big Mac against various currencies.

But he wondered if there was a way to quantify oil against, say, a series of agricultural inputs.

His research showed that the 10-to-1 ratio held for most of the first half of the new decade. When oil moved higher, the ratio held for a while, suggesting that McDonald's was able to adjust prices accordingly.

But then crude took off, and the Big Mac couldn't catch up.

In 2008, when crude hit $147 a barrel, the ratio hit 27.92 Big Macs. The ratio took a dive when the 2008 market crash crushed commodity prices. But not that much -- to 17.5 Big Macs. Now it's about 22 Big Macs.

That may help explain why McDonald's revenue has been static in the past few years.

Call it a paradigm shift or whatever else. Maybe the best name for the world we live in today is Macdonald's: The Era of 20 Big Macs.
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