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The iPod International Currency Index

Posted by kdawson on from the 2-GB-arbitrage dept.

Snad writes "The BBC is reporting that an Australian bank has adopted the price of Apple's iPod as a means of tracking international currency values. Similar to The Economist's Big Mac index, this 'iPod index' tracks the price of a 2-GB iPod Nano around the globe and uses purchasing power parity to determine relative currency value. A sample quote: '"The index suggests that the US dollar has potential to appreciate against a range of major currencies, with the Australian dollar about 15% overvalued against the greenback," said Craig James, Commonwealth Securities' head economist.' The cheapest place to buy an iPod is Canada — $144 (but Hong Kong and Japan are almost as cheap); the most expensive is Brazil — $327."

40 of 185 comments (clear)

  1. ITMS currency index is much simpler by Anonymous Coward · · Score: 4, Funny

    1 song = 1 $ = 1 = 1 £

    1. Re:ITMS currency index is much simpler by Nanpa · · Score: 3, Informative

      Actually, in Australia it's $1.69 so the example sort of breaks down there.

    2. Re:ITMS currency index is much simpler by eldepeche · · Score: 4, Informative

      And in the UK it's actually £0.79, not £0.99.

  2. Sheez by Anonymous Coward · · Score: 2, Insightful

    Just because 'Apple is cool', doesn't mean that you can make everything cool by jut mentioning Apple.
    I'd like to introduce a new scale, the apple scale, where 0 apple is not hyped, and 10 apple is cnn/fox/interwebs hype.

  3. Won't work by Attaturk · · Score: 4, Insightful

    IANAE but there's a crucial difference with other pertinent indices. Bic Macs as are consumed. Oil, by way of another example, is also consumed. Apple's portable music players (ffs) are sold (or given away) and then just used like any other non-consumable, non-disposable commodity. I really can't see how this is anything other than a gimmick.

    1. Re:Won't work by Duds · · Score: 4, Insightful

      Plus this seems to ignore sales tax.

      And indeed uses RRPs by the look of it.

      If it shows the UK currency overvalued by 17% the actual PRICE of an ipod is the same.

    2. Re:Won't work by lawrencekhoo · · Score: 2, Insightful

      You are right in that this price index won't work. But, the crucial difference is *not* whether they are consumed immediately or not. But rather, Big Macs are produced largely using local labour and materials, and so their price reflects the local prices levels of rents, labour, and misc. materials in the country. IPods on the other hand are produced in China or somewhere, and shipped all over the world. As such, IPod prices only reflects Apple's estimate of the demand for IPods vs the competitors that they have in that country.

    3. Re:Won't work by Calinous · · Score: 2, Interesting

      For me, it seems Brasil tends to be self-sufficient. As such, taxing imports is a good way to help local economy.
            However, here are other things to take into account:
      -gold is used or usable to evaluate the strength of a currency - but "gold is forever", and the market for gold is open to transactions in both ways.
      -oil is considered the blood of the current civilisation. As such, oil is an absolutely needed item, and every buyer works on an open market
      -iPods are a trend, at which some people adhere. They are not forever, there is no open market for them, and they certainly are not important for surviving (unlike oil)

            So, taking the price of the iPods to evaluate a currency is wrong on many levels (but might give an insight). It is just considering that US Dollar is more valuable than Euro starting from the premise that gasoline is cheaper over the pond than in the First World

    4. Re:Won't work by vhogemann · · Score: 5, Insightful
      As such, taxing imports is a good way to help local economy.


      I'm sorry to disagree with you.

      How overtaxing things that will never be produced at Brazil, and that have NO local competition help the economy? Last time I checked, every single DAP out there comes from somewhere at Asia.

      The government is just making it harder for brazilians to have access to technology...

      And yes, I'm from Brazil. And it suck to be forced to pay double the price for every piece of IT equipment, sometimes MORE.
      --
      ---- You know how some doctors have the Messiah complex - they need to save the world? You've got the "Rubik's" complex
    5. Re:Won't work by TapeCutter · · Score: 2, Insightful

      It's like a kid I went to school with in the 60's who's natural measure of worth was "pairs of footy boots", (eg: a new bike was worth X pairs of footy boots). I think the ipod index says more about the guy who thought it up than it does about exchanges rates.

      --
      And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.
    6. Re:Won't work by TheSync · · Score: 2, Informative

      Brazil has had average GDP growth of 2.6 percent during Lula's term, a rate that trailed every country in the hemisphere except for Haiti and El Salvador.

    7. Re:Won't work by TheJasper · · Score: 4, Informative

      As a result, the price of an iPod after taxes should be the same regardless of where it is sold, argues Commonwealth Securities. Does it ignore sales tax? the above quote suggests taxes are taken into account. However none of the linked articles seems to go into how the price is derived. For that matter, the US charges a sales tax which differs per state, and other countries charge a VAT which is applied before sale. Of course, I only skimmed the article, but some people here need to do even more than that (see below).

      But just like The Economist's Big Mac index, the CommSec iPod index is a light-hearted look at the pricing of a good across a range of countries. Just like the Big Mac index, it may have use for currency analysis, but time will tell. So why are we all taking this so seriously? It may or may not be useful, but it sure is fun. If you plan on using this to plan your career in currency exchange, you do so at your own risk. The Big Mac index was a joke, but it turned out to be useful. This may as well, though you shouldn't hold your breath.

      If nothing else it shows the disparity in purchasing power for (high end) consumer electronics or luxury products. Don't tell me the iPod is not a luxury product in your country.

      IANAE, but I doubt most people here are either. As far as I read the article it isn't a serious index. OK the BBC article doesn't make this clear, which says something about the BBC. The CommSec article is clearer and perhaps some people here would've done good reading it before going of on a rant about how ridiculous it is.

      In economics oftentimes you just have to try and track things to see what effect they have. You get weird correlations sometimes, and sometimes they are meaningful. Sunspot cycles seem to be correlated to economic cycles, and a friend of mine found a (weak) correlation between the weather in New York and the NYSE index. Does this prove anything? I don't have an answer. However economics is as much about weirdness as it is about math.

    8. Re:Won't work by Black+Perl · · Score: 2, Interesting

      Here's another problem: Apple fixes the prices of the iPods, at least in the US. Dealers can't go below list prices. Mail-order places like MacMall compensate for the inability to lower the price by throwing in free stuff.

      I don't know if this is a good or bad thing for their index, but as a measure of true market value it sure is lousy.

      --
      bp
  4. Including **AA tax ? by krouic · · Score: 3, Insightful

    The index computation does not seem to take into account the taxes (for the local **AA) that some countries are levying on MP3 players.

  5. Re:*Yawn*, Slow newsday? by tsa · · Score: 3, Insightful

    Have you read TFA??! This has nothing to do with the iPod as a music player. O why am I even responding.

    --

    -- Cheers!

  6. Re:*Yawn*, Slow newsday? by antifoidulus · · Score: 4, Funny

    Uh oh Apple! Some guy on the internet said your player sucks, better listen to him or else! Ignore the millions of sales every quarter, they obviously never met this guy on the internet! The INTERNET!

    --
    Monstar L
  7. Not a good index... by bytta · · Score: 2, Insightful

    This does not take price gouging in some countries into effect, so that greedy local Apple dealers and undervalued currency have the same effect.

    I prefer a product that's less "cool", like milk or bigmacs.

  8. Old idea by aristolochene · · Score: 3, Insightful

    In the 80s the price of a mars bar was used as a method of measuring relative costs.

    The cost of a mars bar reflects raw material costs, energy costs, labour costs, transport costs and local taxation.

    It's a good yardstick to measure prices between places and over time.

    Sounds like the same principle is being applied with iPods, with the added advantage that the mention of the word ipod guarantees coverage, more so than something as mundane as the price of a mars bar

    --
    echo $SIGNATURE
  9. The iPod is useless as a scale by ElGanzoLoco · · Score: 5, Informative

    This is not very useful: the market value and intended targets of the iPod change from country to country.

    You can safely assume the shiny gadget is a consumer good in the US, most of Europe, Japan, and other similarly rich countries. But in much of the developing world, it is a luxury item that local distributor(s) can afford to overprice (compared to its value in other markets) because they are only going after the 0,1 percent of wealthy people that can afford the item regardless if it costs 250 or 450USD. For this to make any sense, of course, you need to keep in mind that in many developing countries, there is no such thing as a large middle-class.

    The Economist's Big Mac index is flawed for another, similar reason: going to Mc Donald's is considered cheap and unfashionable in Paris, France, while it the most hype thing to do in Cairo, Egypt, or Guangzhou, China. So despite the fact that you are talking about the exact same BigMac & fries, you are not considering the same product, because its perceived value changes considerably from place to place. I think I remember reading an Economist article that aknowledged this.

    --
    Hello! I'm a disaster waiting to happen!
    1. Re:The iPod is useless as a scale by rm999 · · Score: 4, Informative

      This is from the economists' most recent article using the big mac [May 25th 2006]:

      "The index was never intended to be a precise predictor of currency movements, simply a take-away guide to whether currencies are at their "correct" long-run level. Curiously, however, burgernomics has an impressive record in predicting exchange rates: currencies that show up as overvalued often tend to weaken in later years. But you must always remember the Big Mac's limitations. Burgers cannot sensibly be traded across borders and prices are distorted by differences in taxes and the cost of non-tradable inputs, such as rents."

      Any PPP calculation will be flawed between different countries due to cultural differences (the french probably prefer croissants to bread), but IMO the economist was smart in using McDonald's research of what their product is worth in a given country to assess that country's currency. My guess is Apple's index means less because they fear arbitrage of their product (ie. people shipping cheaper ipods from third world countries to the USA)

  10. Stupid idea by sfogel · · Score: 5, Insightful

    The Big Mac index is so good because the price of the Big Mac involves a little bit of everything: tradable products (meat, bread, etc), labor, services, rental, etc. It is cheap, and usually not subject to any special taxes. The iPod is an imported luxury good, and thus its price is subject to arbitrary decisions by dealers and governments. No good.

    1. Re:Stupid idea by mgblst · · Score: 2, Informative

      SUre, that might be the manufacturing cost of a Big Mac, but that doesn't really relate to the price charged for a Big Mac, except that in most cases, it should be lower. Price is set by demand.

  11. Brasil's prices suck! by Wooky_linuxer · · Score: 4, Informative

    Most expensive nano, most expensive PS3 (the 60GB version was R$8000 at launch - thats 3270 fscking dollars!!!!) And this in retail stores, not eBay or similar. Probably most expensive Macbooks as well. You know, we are all filthy rich here, so we don't mind paying such outrageous prices. Sigh.

    --
    Where is that guy who'd die defending what I had to say when I need him?
  12. Re:*Yawn*, Slow newsday? by 91degrees · · Score: 4, Insightful

    Unless you consider a Big Mac to be fine cuisine, and American Idol to be the most insightful television show available, sales aren't really a good indicator of quality.

  13. An iPod index makes no economic sense by patiwat · · Score: 5, Insightful

    The reasoning behind the Big Mac index is that for the most part, McDonalds tries to produce the burgers using the cheapest available inputs. Thus, the Big Mac index is representative of the cost of a bundle of food-related inputs. Much of the time, this means locally produced inputs. A country with low cost beef and wheat will have relatively cheaper Big Macs, whereas countries with expensive beef and wheat (or high input tariffs) will have relatively more expensive Big Macs. In the long run, a country with cheap inputs will tend to export to countries with expensive inputs, thus weakening the currency of the importing nation and strengthening the currency of the exporting nation.

    The idea of an iPod index makes no economic sense. The reason that an iPod is expensive in Brazil, India, and Thailand isn't because labor, LCDs, and Flash Memory are expensive in those countries. An iPod costs the same to produce no matter where it is sold. The only main difference is in import duties and sales taxes. Import duties and sales taxes have nothing to do with the long-term direction of a country's currency. This index is a waste of time.

  14. Local laws by aitio · · Score: 3, Informative

    It also doesn't take into account how local laws affect prices.

    Finnish consumer protection laws are quite demanding, which causes higher prices.

    Example: My iBook display stopped working after 18 months of use. I took the display apart and found that the display hinge had eaten into the cable. Because the cause of the problem was an incorrect design of the hinge, Apple had to replace the cable, with no cost to the consumer what so ever.

    In the United States, you would propably have voided the warranty just by opening the display case. Here, the manufacturer has to show that problem was caused by incorrect use of the product to avoid paying for the repairs during the "expected lifetime" of the product. ("Expected lifetime" depends on the type of the product. With computers it's somewhere between 2 and 3 years.)

    So, Americans get cheaper products, but have to pay for "Extended Apple Care" and such.

    --
    Quidquid latine dictum sit, altum sonatur.
  15. Not That Simple by jonadab · · Score: 5, Informative

    You really can't calculate a meaninful exchange rate based on the price of a single product, unless the economies of the two nations are inherently similar. Yes, MKs in Africa figure exchange rates based on the price of Coca-Cola, but that's between countries with more-or-less the same economy, and it's inherently an informal calculation anyhow. You can't meaninfully compare the currencies of the US and Australia that way, much less the US and Brasil.

    The problem is that different kinds of goods and services are more or less expensive in different economies. You can get VERY different ideas about the exchange rate, depending on which product you look at. In one country, technology is cheap but labor is expensive. In another, technology is unaffordable but labor is cheap. In another, both technology and labor are expensive but food is cheap. If you compare currencies based on one product, you can get yourself quite seriously confused.

    Exchange rates are also driven by trade balances, and just because one US dollar can be exchanged for eight billion Ubledubgongian Frankls does not mean that a product worth one dollar in the US will cost F8 billion in Ubledubgong. It may only cost 250 Frankls. Going the other direction, just because exchanging one US dollar only gets you 50p in England does not necessarily mean that 50p has the same purchasing power as $1 would have in the US. People who don't understand economics tend to assume it works that way, but it doesn't.

    --
    Cut that out, or I will ship you to Norilsk in a box.
  16. iPod vs. Big Mac Index by NoSuchGuy · · Score: 5, Interesting

    The Big Mac Index is more suitable because it is a local index.

    Because for a Big Mac you look at the local costs and industries.
    (packaging, local labour cost, local agriculture (salad, meat...))

    For an iPod you only measure the chinise output (packaging, chinese labout cost, chinise raw materials ...) and the local reseller cost and worldwide shipping cost.

    --
    Grundgesetz * 23. Mai 1949 - 30. November 2007 - http://www.vorratsdatenspeicherung.de/
    1. Re:iPod vs. Big Mac Index by beathyate · · Score: 4, Informative

      We are an Apple reseller in Peru. Since we don't have local Apple offices we buy the iPods in the US and then import them. The discount is pretty much 8% for all countries that need to import them this way, then we pay shipping to Peru, 12% ad-valorem tax, add a 10% margin, and we have 19% sales tax.
      Brasil has way higher ad-valorem, but has local Apple offices.
      The US has only a 5%-8% sales tax.
      Mexico has 0% ad-valorem since the consider the iPod a hard drive, and 15% sales tax.

      So there are a lot of thing to consider... I agree, the Big Mac index should be more accurate.

  17. Re:Clueless by StrahdVZ · · Score: 2, Informative

    Whoever wrote this seems entirely clueless about economics. The Commonwealth Bank and its subsidiaries are NOT what you would call expert trading and financial institutions. Its just BIG, due to its history as an ex-government institution, and "supposedly" easy to access (although other banks have far better business hours across all their branches).


    Anyway the comparison to the Big Mac Index is apt. They are the banking equivalent of McDonalds (if you can imagine, Big Mac Banking).

    Likewise their trading subsidiary, Commmonwealth Securities, are the trading equivalent of McDonalds - they have low fees so are ideal for a cheap purchase where you already know what you wish to purchase. I use them myself for this purpose.

  18. Re:*Yawn*, Slow newsday? by Anonymous Coward · · Score: 2, Funny

    Oh no! he spelt it MAC We must burn him!

  19. Re:*Yawn*, Slow newsday? by Vexorian · · Score: 2, Insightful

    Yeah, the ipod is just a friging mp3 or other stuff player with DRM, for god's sake don't make a hype out of it, stylish hardware shouldn't be the standard for mass acquiring stuff.

    --

    Copyright infringement is "piracy" in the same way DRM is "consumer rape"
  20. This is Slashtap by shigelojoe · · Score: 5, Funny

    This site goes to 11.

  21. Re:*Yawn*, Slow newsday? by shplorb · · Score: 5, Informative

    Did you know that ipods only support 2 video formats (both of them MAC formats)

    Last time I checked, the formats were MPEG4 and MPEG4-AVC/H.264 - hardly "MAC-only" formats!

  22. And in a related article by clickclickdrone · · Score: 3, Funny

    Confused australians are trying to plug their headphones in to Big Macs. We interviewed Dwayne Bushtucker who said 'I read that they used to use Big Macs for their research but now it was iPods but I figured I'd check if they were compatible. I guess not...'

    --
    I want a list of atrocities done in your name - Recoil
  23. Re:*Yawn*, Slow newsday? by LKM · · Score: 2, Insightful
    Apple stuff is nearly always overpriced for what they offer. Especially accessories for the ipod

    ...which are usually not made by Apple at all.

  24. Not good PPP measure by rlp · · Score: 2, Interesting

    I agree with the posters that the Big Mac index is a much better metric for purchasing price parity. But I don't think an Ipod index is worthless. I suspect it correlates well with the competitiveness of the local retail market as well as government regulation and taxation. If you adjusted the price for PPP (i.e. apply the Big Mac index), the resulting metrics could be a measure of local market efficiency (competitiveness and degree of govt. interference).

    --
    [Insert pithy quote here]
  25. Bad Corrollation by Paris_Hojo · · Score: 2, Insightful

    This is kind of a silly correlation. Market competition also plays a factor in price. Without having done any formal research, I'm guessing iPod's are cheap in Japan and HongKong because there's an abundance of "alternative goods" (econ 101 anybody?) available in those tech-savvy markets, and the iPod's market share is much more vulnerable. Peace Out.

  26. Argentina not so good either by dalmiroy2k · · Score: 3, Informative

    Argentina not so good either. We are almost as bad as Brasil
    Check it yourself, direct from Apple Argentina:

    http://www.macstation.com.ar/store/index.php?secci on=producto&code=465

    999.00 pesos!

    999 / 3.11 (current american dollar convertion) = 321.22 dollars!!!!!!!

    It's a steal.

  27. Re:*Yawn*, Slow newsday? by 10Ghz · · Score: 2, Insightful

    "The primary reason it has sold so many units is because they managed to make it a fashion statement and people love to feed their Egos & have status amongst their peer groups."

    Back when I was shopping for mp3-players, I did look around. Creative and other felt flimsy and cheap. iPod Mini felt like a hi-quality piece of equipment. I had no special interest to buy an Apple-product, I wanted the best possible product. And the iPod simply felt better than the competition did. The iPod was the only one that seemed like it was actually Designed, as opposed to being "designed".

    "Did you know that ipods only support 2 video formats (both of them MAC formats) and that you have to shove every video you want to load on a 80 GB hard drive into a single folder without the ability to create sub-folders?"

    Oh the humanity! Those sub-folders really are a must-thing to have! Apple is DOOMED!

    --
    Lesbian Nazi Hookers Abducted by UFOs and Forced Into Weight Loss Programs - -all next week on Town Talk.