This is the brainchild of Craig James, the chief equities economist at CommSec, a division of the Commonwealth Bank of Australia.
Launched in the same spirit as The Economist’s 1986 Big Mac index – a light-hearted way to assess currency movements, but with sensible economic reasoning behind it – the theory of the new index is that if an iPod (CommSec goes for the 2GB iPod nano) is cheaper in one country than another, it is a crude pointer that that currency is undervalued and due to move. It’s a better index than the Big Mac; unlike the burgers, which are manufactured in all sorts of places so that prices are distorted by labour laws, transport costs and trade barriers, iPods are almost all made in China (although freight costs obviously vary from place to place).
So what does it tell us? An iPod costs more than twice as much to buy in Brazil (US$327.71) as in Canada (US$144.20), with the US, Japan and Hong Kong at similarly low levels. “Overall, the results suggest that the US dollar has scope to rise against a range of major currencies,” says James, who notes that China – despite having no freight costs, being the manufacturing base – ranks in the middle. “It won’t provide joy to US policymakers,” he says. “They want the Chinese yuan to appreciate, not fall in value against the US dollar.”
