The iPod Index

By abhishek at 7 October, 2007, 2:45 am

In September 1986, The Economist in its quest to simplify the jargon, ‘Purcasing Power Parity’ (PPP), coined the concept of the Big Mac index which spwaned the term, ‘Burgernomics.’� In their words, “Burgernomics is based on the theory of purchasing-power parity; the notion that a dollar should buy the same amount in all countries.” So, if a veg cheese burger costs you $2 in Atlanta US, it should ideally cost you Rs. 80 ($1=Rs.40) here in Mumbai, India, but, that obviously is not the case (Please discount the debate of how the Americans define “Veg” here. This is just an example!). It� continues, ‘The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.’

In the same vein, if an iPod cost you $100 in the US, you should be able to buy it in any country at the dollar equivalent of $100. But, that is not the case! Unlike McDonald’s which is munched in 120 countries, an iPod which is an aspirational as well as a utility devise now is sold in 55 countries where the prices vacillate like a mercury in a thermometer! In fact, an Australian Bank has no qualms in comparing the prices of the 4 GB iPod (the common man’s iPod) among countries and use it as an economic indicator. In dollar terms, a 4GB iPod will cost you $183 in India and $370 in Brazil. Phew! The difference between the prices for the same product depends on which time zone you are in. While the rupee is rapidly appreciating against the dollar, the dollar cost of the iPod will only fall further in India (atleast a little less than $183).

While the Big Mac index and the iPod index are only informal ways of explaining the Purchasing Power Parities among economies, it is also an important indicator of the health of such countries. It was Coca-cola map in 1997 and Tall Latte Index (Starbucks) in 2004. While the emerging markets like india and China on a high, the sub prime crisis and the housing bust that has hit the US which has only hastened the downfall of the dollar.

Chill out buddies. In very simple language that I can understand is that you need to be in India to get yourself the best rates for the Apple iPod nano!

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Categories : Technology