The Wall Street Journal looked at prices in 29 major global markets as an exercise to compare different currencies.
How much is a dollar worth? Well, outside of the obvious answer of 100 cents, the more ambiguous answer is that the value of a dollar is dependent on what you can buy. For that reason, one trick currency traders use to determine the value of a country’s money is to simply take a standard global product and see what it’s worth in different currencies. We’ve seen this before with the Big Mac Index where every year The Economist looks at the price of a McDonald’s Big Mac around the globe. And now, the Wall Street Journal has a similar metric: the Starbucks “Latte Index.”
In theory, by converting the price of a tall Starbucks latte around the globe into dollars, we can determine which currencies are overvalued and undervalued compared to our greenbacks. Even for non-economist, the exercise is still interesting because it answers the question, where are Starbucks lattes the most expensive and where are they the cheapest? The answer: Zurich has, by far, the most expensive latte. Meanwhile, if you want a latte for under two bucks, go to Istanbul, Johannesburg or Cairo.
In New York, the standard the WSJ sets for the dollar, a Starbucks latte costs $3.45. Out of the 29 cities the financial paper looked at, that actually ranked 14th, or right in the middle. In Zurich, Switzerland, that same latte costs $5.76 – making the Swiss franc look extra strong. Meanwhile, a latte in Berlin was $3.40, which would theoretically put the euro right in line with the dollar where it should be. Meanwhile, Cairo was dead last on the list, where Egyptians can pick up tall lattes for just $1.53 a pop.
Other expensive cities: Hong King, Singapore, Beijing, Shanghai, Brussels, Beirut and Dubai all had lattes over $4. And a couple other cities of note: In Toronto and London, a latte cost the equivalent of $2.94 and $2.84 respectively, demonstrating a possible weakness in the currency of two of America’s closest allies.
Overall, the WSJ writes, “Though the latte prices are likely also affected by factors such as country taxes, The Wall Street Journal’s Latte Index broadly mirrors the results of other valuation methods.” Translation, the WSJ thinks its index is pretty accurate. But it’s also only one metric. And frankly, if you’re not a currency trader or traveling abroad for a latte, how much does it really matter anyway?