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.
3Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min
Sponsored by:

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The stock market finished the Tuesday session on the defensive after spending the entire day in a steady retreat. The S&P 500 (-0.6%) posted its third consecutive decline, while the small-cap Russell 2000 (-0.9%) slipped behind the broader market during afternoon action.

Equity indices were pressured from the start following some overnight developments that weighed on sentiment. The market tried to overcome the early weakness, but could not stage a sustained rebound, ... More


Currencies

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Sponsored by:

VIDEO ON MSN MONEY