A new theory is percolating through the foreign-exchange markets.
There are many opinions on what one country’s currency ought to be worth relative to others.
And while economists debate the best way to go about this, The Wall Street Journal has developed the Latte Index uses purchasing-power parity (PPP) – comparing the cost of a tall Starbucks latte in dozens of cities around the world.
These prices are then converted to U.S. dollars and compared to the benchmark price, which is a tall Starbucks latte in New York City (US$3.45).
Readers may be familiar with The Economist‘s long-running Big Mac index: by comparing burger prices around the world, it offers a light-hearted guide to whether currencies are at their “correct” level against the dollar.
By coincidence, the average price of a Starbucks tall latte in America is much the same as the average price of a Big Mac.
Obviously the Latte Index is mostly for fun, but it’s also broadly in line with predictions made by the experts.
Subscribe & don’t miss a single episode of michael yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to michael yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.